Let Crockett Appraisal Service, Inc. help you figure out if you can eliminate your PMI
A 20% down payment is usually accepted when purchasing a home. Considering the risk for the lender is oftentimes only the difference between the home value and the sum due on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuationson the chance that a purchaser is unable to pay.
Banks were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the worth of the home is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they get the money if the borrower doesn't pay, contradictory to 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 prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy 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 loan amount, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've obtained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends indicate falling home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things settled down.
The hardest thing for most homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Crockett Appraisal Service, Inc., we know when property values have risen or declined. We're experts at pinpointing value trends in Colorado Springs, El Paso County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little effort. 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: