Let RWA Appraisals help you learn if you can get rid of your PMI
It's widely known that a 20% down payment is common when buying a house. Since the risk for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value changeson the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in case a borrower doesn't pay 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 compiled into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. It's money-making for the lender because they secure the money, and they get the money if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the damages.
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 paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise home owners can get off the hook beforehand. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Considering it can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, it's important to know how your home has increased in value. After all, any appreciation you've accomplished over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home might have acquired equity before things cooled off, so even when nationwide trends signify plummeting home values, you should realize that real estate is local.
The hardest thing for many homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At RWA Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Port Orchard, Kitsap County and surrounding areas. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that 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: