Let Crowe Appraisals help you determine if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is generally only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variations in the event a borrower is unable to pay.
The market was working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the worth of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI can be costly to a borrower. Opposite from a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they secure the money, and they receive payment if the borrower defaults.
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 expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen homeowners can get off the hook beforehand. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take many years to get to the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
The difficult thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At Crowe Appraisals, we know when property values have risen or declined. We're masters at analyzing value trends in Oklahoma City, Oklahoma County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: