Crest Appraisal Services can help you remove your Private Mortgage Insurance
It's typically inferred that a 20% down payment is the standard when purchasing a home. The lender's risk is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the low down payment with Private Mortgage Insurance or PMI. This additional policy protects the lender in the event a borrower doesn't pay on the loan and the market price of the house is less 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 frequently isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they collect the money, and they get the money 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 can a homebuyer avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, keen home owners can get off the hook ahead of time.
Considering it can take countless years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has grown in value. After all, all of the appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should realize that real estate is local.
The toughest thing for most homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Crest Appraisal Services, we're masters at recognizing value trends in Seattle, King County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: