Let Furr Appraisal Service help you figure out if you can get rid of your PMI
A 20% down payment is usually the standard when buying a house. The lender's risk is often only the remainder between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible. It's advantageous for the lender because they secure the money, and they get the money if the borrower is unable to pay, opposite from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homeowners can refrain from bearing the expense of PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen home owners can get off the hook a little early. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial loan amount, so it's crucial to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The hardest thing for many home owners to understand is just when their home's equity rises above 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 Furr Appraisal Service, we're experts at recognizing value trends in Camden, Benton County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally remove the PMI with little effort. At that 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: