Have equity in your home? Want a lower payment? An appraisal from Powers Real Estate Services, LLC can help you get rid of your PMI.
It's widely understood that a 20% down payment is the standard when buying a house. The lender's risk is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy guards the lender if a borrower doesn't pay on the loan and the worth of the house is less than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender absorbs all the damages.
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 refrain from bearing the expense of 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 reaches 78 percent of the original loan amount. The law states that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's important to know how your home has grown in value. After all, any appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home may have gained equity before things calmed down, so even when nationwide trends indicate declining home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Powers Real Estate Services, LLC, we know when property values have risen or declined. We're masters at pinpointing value trends in San Tan Valley, Pinal County and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that 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: