Let Alaska Real Estate Appraisal help you discover if you can eliminate your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is often only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value variations in the event a purchaser defaults.
Lenders were accepting 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 added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower doesn't pay on the loan and the worth of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible, PMI is pricey to a borrower. Contradictory to 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 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 can a homebuyer keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required 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 early. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Because it can take many years to get to the point where the principal is just 20% of the initial loan amount, it's important to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends indicate plunging home values, realize 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 cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above 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 Alaska Real Estate Appraisal, we're experts at pinpointing value trends in Wasilla, Matanuska Susitna County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually cancel the PMI with little trouble. 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: