Let Furr Appraisal Service help you figure out if you can cancel your PMI
It's typically understood that a 20% down payment is common when buying a house. The lender's liability is usually only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a borrower defaults.
The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they acquire the money, and they get paid if the borrower defaults, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen homeowners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Considering it can take countless years to get to the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be following the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
The hardest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with the market dynamics of their area. At Furr Appraisal Service, we're experts at determining value trends in Camden, Benton County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: