Let A-Z Residential Appraisals help you learn if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's liability is often only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the worth of the house is less than the loan balance.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible. It's advantageous for the lender because they obtain the money, and they get paid if the borrower doesn't pay, contradictory to a piggyback loan where the lender absorbs 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 home buyers refrain from paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen homeowners can get off the hook sooner than expected. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take countless years to reach the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has grown in value. After all, all of the appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends forecast decreasing home values, realize that real estate is local. Your neighborhood might not be heeding the national trends and/or your home might have secured equity before things cooled off.
The toughest thing for many home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At A-Z Residential Appraisals, we're experts at pinpointing value trends in Litchfield Park, Maricopa 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 do away with the PMI with little anxiety. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: