Let Barnes Appraisal Company help you decide if you can cancel your PMI
It's widely understood that a 20% down payment is common when buying a house. The lender's liability is oftentimes only the difference between the home value and the amount due on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value changes on the chance that 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. How does a lender endure the added risk of the low 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 market price of the home is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they obtain 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 homebuyers keep from paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Savvy home owners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have gained equity before things settled down.
The difficult thing for many homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Barnes Appraisal Company, we know when property values have risen or declined. We're masters at analyzing value trends in Lawton, Comanche County and surrounding areas. Faced with figures 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: