Have equity in your home? Want a lower payment? An appraisal from Southern Star Real Estate Services can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value variationsin the event a borrower is unable to pay.
Banks were working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the market price of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they collect the money, and they get the money if the borrower is unable to pay, 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 prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, keen home owners can get off the hook sooner than expected.
Because it can take many years to reach the point where the principal is only 20% of the initial loan amount, it's necessary to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends signify decreasing home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have acquired equity before things simmered down.
The toughest thing for many home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At Southern Star Real Estate Services, we know when property values have risen or declined. We're masters at identifying value trends in Powder Springs, Paulding County and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little trouble. 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: