Let DAS Appraisals help you learn if you can get rid of your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value variations in the event a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower doesn't pay on the loan and the market price of the property is lower than what is owed on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible. It's lucrative for the lender because they collect the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer refrain from bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart home owners can get off the hook beforehand. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
Since it can take countless years to reach the point where the principal is just 20% of the initial amount borrowed, it's important to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.
The toughest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At DAS Appraisals, we're experts at determining value trends in Hackensack, Rockland County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often do away with the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: