Let DAS Appraisals help you learn if you can eliminate your PMI
A 20% down payment is typically the standard when buying a house. The lender's risk is generally only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations in the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they obtain the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can prevent bearing the cost of PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Keen homeowners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Because it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has grown in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be adopting the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends indicate declining home values, you should realize that real estate is local.
The toughest thing for many homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At DAS Appraisals, we're experts at determining value trends in Hackensack, Rockland County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually do away with the PMI with little trouble. 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: