Let Graham Appraisal help you determine if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is often only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuations on the chance that a purchaser defaults.
During the recent mortgage boom of the last decade, it became widespread to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to manage the added risk of the reduced down payment with 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 less than what is owed on the loan.
PMI is pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the damages, PMI is beneficial for the lender because they secure the money, and they receive payment 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 owners can prevent paying PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is only 20% of the initial amount borrowed, so it's important to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be following the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends forecast plunging home values, you should understand that real estate is local.
The difficult thing for almost all homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Graham Appraisal, we know when property values have risen or declined. We're experts at analyzing value trends in Glasgow, Barren County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: