Let Anderson Appraisal, LLC help you determine if you can cancel your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's liability is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value variations on the chance that a borrower is unable to pay.
The market was taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental policy protects the lender in the event a borrower defaults on the loan and the value of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they obtain 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 home owner keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Acute homeowners can get off the hook ahead of time. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Considering it can take countless years to reach 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, every bit of appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things settled down.
The difficult thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Anderson Appraisal, LLC, we're masters at analyzing value trends in Amarillo, Randall County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually cancel the PMI with little effort. 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: