Have equity in your home? Want a lower payment? An appraisal from Allatoona Appraisal can help you get rid of your PMI.
It's typically understood that a 20% down payment is accepted when getting a mortgage. The lender's liability is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value changes on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan covers the lender in case a borrower doesn't pay on the loan and the value of the property is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender takes in 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 avoid paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, acute homeowners can get off the hook a little early.
Because it can take many years to arrive at the point where the principal is only 20% of the original loan amount, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home might have acquired equity before things cooled off, so even when nationwide trends forecast decreasing 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 goes over the 20% point, as it's a difficult thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Allatoona Appraisal, we're experts at identifying value trends in Kennesaw, Cobb County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little effort. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: