Have equity in your home? Want a lower payment? An appraisal from Area Appraisal Services, Inc. can help you get rid of your PMI.
It's largely known that a 20% down payment is common when buying a house. Since the liability for the lender is usually only the difference between the home value and the sum remaining on the loan, the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and typical value changeson the chance that a purchaser doesn't pay.
Lenders were working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the worth of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Opposite from a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they collect the money, and they get paid if the borrower defaults.
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 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 reaches 78 percent of the original loan amount. The law states that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, keen homeowners can get off the hook ahead of time.
Considering it can take many years to arrive at the point where the principal is only 20% of the initial loan amount, it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Area Appraisal Services, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Bethesda, Montgomery County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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