Have equity in your home? Want a lower payment? An appraisal from Crowe Appraisals can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. Since the liability for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value changeson the chance that a purchaser 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. A lender is able to manage the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the value of the property is less than the balance of the loan.
Because 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. Opposite from a piggyback loan where the lender takes in all the damages, PMI is advantageous for the lender because they obtain the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise home owners can get off the hook a little earlier.
It can take countless years to reach the point where the principal is only 20% of the initial loan amount, so it's important to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate plunging home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have secured equity before things calmed down.
The difficult thing for many 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. As appraisers, it's our job to recognize the market dynamics of our area. At Crowe Appraisals, we know when property values have risen or declined. We're experts at determining value trends in Oklahoma City, Oklahoma County and surrounding areas. When faced with data from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: