Let Higdon & Associates help you decide 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 difference between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and natural value variations on the chance that a borrower is unable to pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the market price of the property is lower than the balance of the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. It's money-making for the lender because they secure the money, and they receive payment if the borrower doesn't pay, opposite from a piggyback loan where the lender takes in 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 homebuyers refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes 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 home owners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
Considering it can take countless years to get to the point where the principal is just 20% of the original amount of the loan, it's important to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends indicate decreasing home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things calmed down.
The toughest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Higdon & Associates, we know when property values have risen or declined. We're masters at identifying value trends in Antioch, Contra Costa County and surrounding areas. When faced with information from an appraiser, the mortgage company will often drop the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: