Let American Appraisal, Inc. help you determine if you can cancel your PMI
It's largely inferred that a 20% down payment is common when purchasing a home. The lender's risk is often only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and regular value variations on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower defaults on the loan and the value of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender consumes all the deficits, PMI is lucrative for the lender because they acquire the money, and they get the money if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can refrain from bearing the expense of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook sooner than expected.
Since it can take countless years to get to the point where the principal is just 20% of the initial loan amount, 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 what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends forecast falling home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have gained equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At American Appraisal, Inc., we're masters at pinpointing value trends in Bakersfield, Kern County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often remove the PMI with little effort. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: