Have equity in your home? Want a lower payment? An appraisal from Appraisal Metrics can help you get rid of your PMI.
It's widely known that a 20% down payment is accepted when purchasing a home. The lender's liability is often only the remainder between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value variations in the event a borrower is unable to pay.
During the recent mortgage upturn of the last decade, it became widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the additional risk of the low down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender if a borrower defaults on the loan and the value of the home is lower than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they collect the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners avoid bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart home owners can get off the hook beforehand. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
Since it can take many years to get to the point where the principal is only 20% of the initial loan amount, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends hint at decreasing home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Appraisal Metrics, we know when property values have risen or declined. We're experts at determining value trends in Novi, Oakland County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often drop the PMI with little trouble. At which 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: