Let Anderson Appraisal, LLC help you decide if you can eliminate your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower doesn't pay on the loan and the value of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower is unable to pay, contradictory to a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from bearing the expense of PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Acute home owners can get off the hook ahead of time. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's important to know how your home has increased in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home may have acquired equity before things calmed down, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Anderson Appraisal, LLC, we know when property values have risen or declined. We're experts at determining value trends in Amarillo, Randall County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often drop the PMI with little effort. At that 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: