Let Price Appraisals & Realty, LLC help you decide if you can get rid of your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's liability is often only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to endure the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they collect the money, and they get the money 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 prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 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 just 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends predict plunging home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home may have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Price Appraisals & Realty, LLC, we know when property values have risen or declined. We're experts at determining value trends in Lakeway, Travis County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often do away with the PMI with little trouble. 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: