Let Fox Briar Appraisal Services help you learn if you can get rid of your PMIIt's largely understood that a 20% down payment is accepted when getting a mortgage. Considering the liability for the lender is often only the remainder between the home value and the amount due on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders only asking for down payments of 10, 5 or even 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the value of the house is less than what is owed on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they secure the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender consumes all the damages.
How can a homebuyer prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount on most loans. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, acute home owners can get off the hook ahead of time.
It can take a significant number of years to get to the point where the principal is only 80% of the initial loan amount, so it's important to know how your California home has appreciated in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home could have acquired equity before the economy simmered down. So even when nationwide trends forecast a reduction in home values, you should realize that real estate is local.
The toughest thing for many people to determine is just when their home's equity goes over the 20% point. An accredited, California licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Fox Briar Appraisal Services, we're masters at pinpointing value trends in Carmel, Monterey County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. 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: