Let Tri-County Appraisals help you figure out if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is often only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and regular value variations in the event a purchaser doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to handle the added risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the value of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower defaults, contradictory to 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 can home buyers keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cancel 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 beforehand. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take many years to reach the point where the principal is just 20% of the original amount of the loan, so it's essential to know how your home has increased in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends predict 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 hard thing to know. It's an appraiser's job to know the market dynamics of their area. At Tri-County Appraisals, we're experts at pinpointing value trends in Loveland, Larimer County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: