Premier Appraisal of SoCal can help you remove your Private Mortgage Insurance
It's typically understood that a 20% down payment is common when buying a house. The lender's liability is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added plan takes care of the lender in case a borrower doesn't pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and generally isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is profitable for the lender because they obtain the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Savvy homeowners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take many years to get to the point where the principal is just 20% of the initial amount borrowed, so it's important to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate decreasing home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things cooled off.
The hardest thing for almost all home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At Premier Appraisal of SoCal, we're experts at analyzing 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 often drop the PMI with little effort. At that 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: