Let Accurate Appraisers help you discover if you can eliminate your PMIIt's typically inferred that a 20% down payment is accepted when buying a house. Because the risk for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and natural value changes on the chance that a borrower doesn't pay.
The market was taking down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the value of the house is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender takes in all the deficits, PMI is money-making for the lender because they acquire the money, and they receive payment if the borrower defaults.
How can a buyer avoid bearing the expense of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on nearly all loans. The law pledges that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook ahead of time.
Because it can take many years to arrive at the point where the principal is just 80% of the original amount borrowed, it's essential to know how your California home has grown in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home may have acquired equity before the economy declined. So even when nationwide trends indicate falling home values, you should realize that real estate is local.
A certified, California licensed real estate appraiser can help home owners figure out if their equity has reached 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 Accurate Appraisers, we're experts at identifying value trends in Lake Elsinore, Riverside 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 usually do away with the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: