Have equity in your home? Want a lower payment? An appraisal from Kent & Associates Appraisal can help you get rid of your PMI.
It's generally understood that a 20% down payment is accepted when getting a mortgage. Because the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and regular value variationson the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower defaults on the loan and the value of the property is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen homeowners can get off the hook ahead of time. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.
Since it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends forecast plummeting home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things calmed down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Kent & Associates Appraisal, we know when property values have risen or declined. We're masters at pinpointing value trends in Mill Creek, Snohomish County and surrounding areas. Faced with data from an appraiser, the mortgage company will often cancel the PMI with little trouble. 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: