Have equity in your home? Want a lower payment? An appraisal from Reliant Appraisals can help you get rid of your PMI.
When buying a house, a 20% down payment is typically the standard. Since the liability for the lender is oftentimes only the remainder between the home value and the amount due on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value changeson the chance that a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the worth of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they collect the money, and they get paid if the borrower is unable to pay, different from a piggyback loan where the lender consumes 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 buyers avoid bearing the cost of PMI?
With the utilization 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 primary loan amount. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook ahead of time.
Considering it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.
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. As appraisers, it's our job to know the market dynamics of our area. At Reliant Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in San Antonio, Bexar County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: