Let Allatoona Appraisal help you discover if you can eliminate your PMI
It's typically known that a 20% down payment is accepted when buying a house. The lender's liability is generally only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value changes on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small 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 home is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Unlike a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they obtain the money, and they receive payment if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise home owners can get off the hook ahead of time. The law states that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
Considering it can take many years to get to the point where the principal is only 20% of the initial loan amount, it's important to know how your home has grown in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have secured equity before things settled down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Allatoona Appraisal, we know when property values have risen or declined. We're masters at recognizing value trends in Kennesaw, Cobb County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: