Let Desert Sky Appraisers help you learn if you can eliminate your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is oftentimes only the difference between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the value of the property is less than the loan balance.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they collect the money, and they get paid 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 avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
Since it can take many years to arrive at the point where the principal is just 20% of the original loan amount, it's important to know how your home has increased in value. After all, all of the appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after your loan balance has dropped 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 indicate falling home values, you should understand that real estate is local.
The difficult thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to keep up with the market dynamics of their area. At Desert Sky Appraisers, we're experts at analyzing value trends in Chandler, Maricopa County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually remove the PMI with little anxiety. 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: