Let Appraise Colorado Inc help you decide if you can eliminate your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum due on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and regular value fluctuations on the chance that a purchaser defaults.
Lenders were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the value of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. Opposite from a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they collect the money, and they receive payment 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 owners can refrain from bearing the expense of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Acute home owners can get off the hook beforehand. The law guarantees that, at the request of the home owner, the PMI must be dropped 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 borrowed, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify falling home values, realize that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things settled down.
The hardest thing for many homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At Appraise Colorado Inc, we know when property values have risen or declined. We're masters at pinpointing value trends in Parker, Arapahoe County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: