Let Price Appraisals & Realty, LLC help you learn if you can get rid of 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 costs of foreclosure, reselling the home, and regular value changes in the event a borrower defaults.
Lenders were taking down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. This supplemental policy protects the lender in case a borrower doesn't pay on the loan and the market price of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Opposite from a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they acquire 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 can buyers prevent paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Acute homeowners can get off the hook a little earlier. The law promises that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
It can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends hint at falling home values, realize that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have secured equity before things calmed down.
The toughest thing for most home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Price Appraisals & Realty, LLC, we're experts at analyzing value trends in Lakeway, Travis County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually eliminate 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: