Let Columbus Appraisal Company, LLC help you decide if you can eliminate your PMI
It's largely inferred that a 20% down payment is accepted when purchasing a home. 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 buffer against the costs of foreclosure, reselling the home, and natural value changes on the chance that a purchaser defaults.
Lenders were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is favorable for the lender because they collect the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise home owners can get off the hook ahead of time. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is only 20% of the initial amount borrowed, so it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home could have secured equity before things simmered down.
The hardest thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Columbus Appraisal Company, LLC, we're experts at analyzing value trends in Westerville, Franklin 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 generally cancel the PMI with little trouble. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: