Tri-County Appraisals can help you remove your Private Mortgage Insurance
It's widely known that a 20% down payment is the standard when buying a house. The lender's liability is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a purchaser is unable to pay.
The market was taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplemental plan covers the lender in the event a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they acquire the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can prevent paying PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Savvy homeowners can get off the hook a little earlier. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends signify plummeting home values, you should realize that real estate is local.
The hardest thing for most home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At Tri-County Appraisals, we're experts at analyzing value trends in Loveland, Larimer County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often drop the PMI with little effort. At which 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: