Let CAA Real Property Services help you determine if you can eliminate your PMI
A 20% down payment is usually the standard when getting a mortgage. Considering the risk for the lender is often only the difference between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser defaults.
The market was working with down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the added risk of the low down payment with Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower is unable to pay on the loan and the value of the home is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. It's beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer keep from 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 reaches 78 percent of the original loan amount. Wise homeowners can get off the hook sooner than expected. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has appreciated in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends indicate decreasing home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have secured equity before things calmed down.
The hardest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At CAA Real Property Services, we know when property values have risen or declined. We're masters at determining value trends in Greenville, Greenville County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little effort. 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: