Let Holloway Appraisals, LLC help you determine if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum remaining on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and regular value changes on the chance that a purchaser defaults.
During the recent mortgage boom of the last decade, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy guards the lender in the event a borrower defaults on the loan and the value of the property is lower than the balance of the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is money-making for the lender because they collect the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Acute home owners can get off the hook ahead of time. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial amount borrowed, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends predict falling home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have gained equity before things simmered down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to know the market dynamics of their area. At Holloway Appraisals, LLC, we're masters at identifying value trends in Fayetteville, Washington County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. At which 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: