Let Race Appraisal Services, LLC help you figure out if you can cancel your PMI
A 20% down payment is usually accepted when buying a house. The lender's risk is usually only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they obtain the money, and they receive payment if the borrower defaults, separate from a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid paying PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, it's necessary to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends hint at decreasing home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home might have gained equity before things settled down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Race Appraisal Services, LLC, we're experts at determining value trends in East Longmeadow, Hampden County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually do away with 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:
Would you like to save money by not having to pay for Private Mortgage Insurance? We can help. Simply fill out the form below as completely as possible and we'll send you information on how to save PMI expenses, with no obligation to you. We guarantee your privacy.