Let Galloway Appraisal help you decide if you can eliminate your PMI
A 20% down payment is usually the standard when buying a house. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and regular value fluctuations on the chance that a borrower doesn't pay.
Lenders were taking down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan covers the lender if a borrower is unable to pay on the loan and the value of the home is less than the balance of the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. It's favorable for the lender because they collect the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender consumes 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 prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all 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, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, keen homeowners can get off the hook ahead of time.
It can take countless years to arrive at the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends signify plummeting home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have secured equity before things cooled off.
The hardest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Galloway Appraisal, we know when property values have risen or declined. We're masters at pinpointing value trends in Louisville, Jefferson County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often drop the PMI with little trouble. At which 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: