Have equity in your home? Want a lower payment? An appraisal from Harper & Strickland, Inc. can help you get rid of your PMI.
It's widely understood that a 20% down payment is accepted when purchasing a home. The lender's liability is usually only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little early.
Because it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's important to know how your home has grown in value. After all, any appreciation you've gained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things settled down.
The difficult thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to understand the market dynamics of their area. At Harper & Strickland, Inc., we're masters at pinpointing value trends in Fairview, Collin County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: