Let Crockett Appraisal Service, Inc. help you discover if you can eliminate your PMI
It's generally inferred that a 20% down payment is the standard when buying a house. Since the risk for the lender is often only the difference between the home value and the sum due on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value variationsin the event a purchaser is unable to pay.
Banks were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the value of the home is less than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender takes in 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 homebuyers avoid paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart homeowners can get off the hook a little earlier.
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 grown in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends forecast plummeting home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have acquired equity before things cooled off.
The toughest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Crockett Appraisal Service, Inc., we're experts at determining value trends in Colorado Springs, El Paso County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little effort. At which 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: