Let Johnston Appraisal Company help you discover if you can eliminate your PMI
A 20% down payment is usually the standard when purchasing a home. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and regular value fluctuations in the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the worth of the property is less than what is owed on the loan.
PMI can be 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 lucrative for the lender because they obtain the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender takes in 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 home buyers keep from bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook a little earlier.
It can take many years to reach the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has grown in value. After all, every bit of appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends hint at plummeting home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home may have acquired equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Johnston Appraisal Company, we're masters at pinpointing value trends in Greensburg, Westmoreland County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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