Let Orangecrest Appraisal Service help you learn if you can eliminate your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the sum due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value variations on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the worth of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. It's profitable for the lender because they collect the money, and they receive payment if the borrower doesn't pay, different from 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 a buyer keep from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, acute homeowners can get off the hook ahead of time.
Considering it can take countless years to reach the point where the principal is just 20% of the original loan amount, it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've obtained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home might have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Orangecrest Appraisal Service, we're experts at determining value trends in Riverside, Riverside 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 cancel the PMI with little trouble. At that 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: