Let Crockett Appraisal Service, Inc. help you learn if you can cancel your PMI
A 20% down payment is usually the standard when buying a house. Considering the liability for the lender is oftentimes only the remainder between the home value and the sum due on the loan, the 20% supplies a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuationsin the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional plan protects the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they acquire the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart home owners can get off the hook sooner than expected.
It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've obtained over time counts towards removing 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 could have gained equity before things simmered down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The difficult 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 certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At Crockett Appraisal Service, Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Colorado Springs, El Paso County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often remove the PMI with little effort. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: