Let Dawson Appraisal Services, LLC help you decide if you can eliminate your PMI
It's widely inferred that a 20% down payment is accepted when getting a mortgage. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and typical value changes in the event a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional plan covers the lender in the event a borrower is unable to 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 many times isn't even tax deductible, PMI can be expensive to a borrower. Opposite from a piggyback loan where the lender consumes all the damages, PMI is lucrative for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can keep from bearing the cost of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, keen home owners can get off the hook sooner than expected.
It can take many years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends predict plunging home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Dawson Appraisal Services, LLC, we know when property values have risen or declined. We're masters at analyzing value trends in Orlando, Orange County and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually cancel the PMI with little trouble. 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: