Have equity in your home? Want a lower payment? An appraisal from A.C. Read Appraisal Service can help you get rid of your PMI.
A 20% down payment is typically the standard when purchasing a home. The lender's liability is often only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. This added policy takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's money-making for the lender because they collect the money, and they get paid if the borrower defaults, separate 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 homebuyers can keep from paying PMI
The Homeowners Protection Act of 1998 forces 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. Smart homeowners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
It can take countless years to arrive at the point where the principal is just 20% of the original loan amount, so it's important to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends forecast decreasing home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things cooled off.
The difficult thing for many homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At A.C. Read Appraisal Service, we know when property values have risen or declined. We're experts at analyzing value trends in East Stroudsburg, Monroe County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: