Have equity in your home? Want a lower payment? An appraisal from S&R Appraisal Service can help you get rid of your PMI.It's generally known that a 20% down payment is common when buying a house. The lender's only liability is typically just the difference between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a purchaser defaults.
Banks were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender if a borrower defaults on the loan and the value of the property is lower than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. It's money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay, different from a piggyback loan where the lender consumes all the losses.
How can home owners refrain from paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, acute homeowners can get off the hook ahead of time.
Considering it can take a significant number of years to get to the point where the principal is just 80% of the original amount of the loan, it's essential to know how your California home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not follow national trends and/or your home may have gained equity before the economy declined. So even when nationwide trends forecast decreasing home values, you should understand that real estate is local.
The difficult thing for many consumers to determine is just when their home's equity rises above the 20% point. A certified, California licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At S&R Appraisal Service, we're masters at analyzing value trends in Van Nuys, Los Angeles County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: