Let Property Valuation Group help you determine if you can eliminate your PMI
It's largely understood that a 20% down payment is the standard when getting a mortgage. The lender's liability is often only the difference between the home value and the amount due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value changes on the chance that a purchaser is unable to pay.
The market was accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the increased risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in the event a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible. It's favorable for the lender because they obtain the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs 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 buyer avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate 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 ahead of time. The law guarantees that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's essential to know how your home has increased in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things cooled off, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Property Valuation Group, we know when property values have risen or declined. We're masters at determining value trends in Ferndale, Oakland County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At which 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: