Let Reliant Appraisals help you discover if you can eliminate your PMI
It's widely understood that a 20% down payment is common when purchasing a home. Considering the liability for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and typical value changeson the chance that a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the market price of the home is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they secure the money, and they get paid if the borrower is unable to 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 bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise home owners can get off the hook a little early. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Since it can take many years to reach the point where the principal is just 20% of the original amount borrowed, it's crucial to know how your home has increased in value. After all, any appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be reflecting the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends forecast declining home values, you should understand that real estate is local.
The toughest 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 certainly help. It's an appraiser's job to understand the market dynamics of their area. At Reliant Appraisals, we know when property values have risen or declined. We're experts at analyzing value trends in San Antonio, Bexar County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: