Let Premier Appraisal of SoCal help you decide if you can cancel your PMI
It's widely inferred that a 20% down payment is accepted when buying a house. Because the liability for the lender is often only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuationson the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders requiring 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 protects the lender in the event a borrower doesn't pay on the loan and the worth of the home is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. Different from a piggyback loan where the lender absorbs all the costs, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower is unable to pay.
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 avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home may have gained equity before things calmed down, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
The toughest thing for most home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to understand the market dynamics of their area. At Premier Appraisal of SoCal, we're masters at analyzing value trends in Mission Viejo, Orange County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally do away with the PMI with little effort. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: