Let The Appraisal Shoppe, Inc. help you determine if you can eliminate your PMI
A 20% down payment is usually the standard when getting a mortgage. The lender's risk is oftentimes only the remainder between the home value and the amount due on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and typical value changes on the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they obtain the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers refrain from 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 reaches 78 percent of the primary loan amount. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook a little early.
Because it can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home may have secured equity before things settled down, so even when nationwide trends indicate plummeting home values, you should realize that real estate is local.
The toughest thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At The Appraisal Shoppe, Inc., we know when property values have risen or declined. We're experts at determining value trends in Virginia Beach, Virginia Beach City County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: