Let Shamrock Appraisals, Inc. help you figure out if you can eliminate your PMI
When purchasing a home, a 20% down payment is usually the standard. Considering the liability for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and natural value variationson the chance that a purchaser defaults.
The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the low 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 market price of the house is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. It's money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen homeowners can get off the hook ahead of time. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to reach the point where the principal is only 20% of the initial amount borrowed, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be adopting the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends signify decreasing home values, you should realize that real estate is local.
The toughest thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Shamrock Appraisals, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Tuscaloosa, Tuscaloosa County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually drop 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: