Have equity in your home? Want a lower payment? An appraisal from Clearfork Appraisals can help you get rid of your PMI.
It's widely understood that a 20% down payment is the standard when purchasing a home. Considering the liability for the lender is usually only the remainder between the home value and the amount remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuationson the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to 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 compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Contradictory to a piggyback loan where the lender consumes all the deficits, PMI is lucrative for the lender because they obtain the money, and they get the money 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 a homebuyer prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart homeowners can get off the hook ahead of time. The law states that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've obtained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends hint at declining home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have gained equity before things calmed down.
The hardest thing for almost all home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Clearfork Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Fort Worth, Tarrant County and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often remove the PMI with little effort. At that 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: