Amerappraise, LLC can help you remove your Private Mortgage Insurance
A 20% down payment is typically the standard when purchasing a home. Because the risk for the lender is generally only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and typical value variationsin the event a borrower is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy guards the lender in case a borrower doesn't pay on the loan and the market price of the property is lower than the loan balance.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. It's lucrative for the lender because they collect the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, keen homeowners can get off the hook ahead of time.
Since it can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate plunging home values, understand that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have secured equity before things settled down.
The toughest thing for many home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At Amerappraise, LLC, we know when property values have risen or declined. We're masters at pinpointing value trends in Bear, New Castle County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually drop 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: