Let DAS Appraisals help you discover if you can get rid of your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the value of the property is less than what the borrower still owes on the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they get paid if the borrower defaults, unlike 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 home owners keep from paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook sooner than expected.
Considering it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's crucial to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends hint at plunging home values, you should understand that real estate is local.
The hardest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to understand the market dynamics of their area. At DAS Appraisals, we're masters at recognizing value trends in Hackensack, Rockland County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: