Let Allatoona Appraisal help you determine if you can eliminate your PMI
A 20% down payment is typically accepted when getting a mortgage. Because the risk for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value variationson the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Contradictory to a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they acquire the money, and they get the money if the borrower doesn't 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 buyer prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little earlier.
Because it can take many years to get to the point where the principal is just 20% of the initial amount borrowed, it's important to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Your neighborhood might not be minding the national trends and/or your home might have secured equity before things calmed down, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to understand the market dynamics of their area. At Allatoona Appraisal, we know when property values have risen or declined. We're experts at determining value trends in Acworth, Cobb County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally cancel the PMI with little effort. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: