Let Premier Appraisal of SoCal help you figure out if you can eliminate your PMI
It's generally known that a 20% down payment is accepted when getting a mortgage. The lender's liability is often only the difference between the home value and the sum due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and typical value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the last decade, it became widespread to see lenders commanding 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. PMI covers the lender in case a borrower defaults 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 bundled into the mortgage payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, separate 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 a homeowner keep from bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart home owners can get off the hook a little earlier.
It can take countless years to get to the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends forecast falling home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things cooled off.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Premier Appraisal of SoCal, we're masters at pinpointing value trends in Mission Viejo, Orange County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: