Allatoona Appraisal can help you remove your Private Mortgage Insurance
It's widely known that a 20% down payment is common when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changes on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the property is less than the balance of the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the costs, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can prevent paying PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook a little earlier.
Since it can take countless years to get to the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends forecast declining home values, you should understand that real estate is local.
The hardest thing for almost all home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Allatoona Appraisal, we're experts at analyzing value trends in Kennesaw, Cobb County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will often cancel the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: