Crest Appraisal Services can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is typically the standard. The lender's liability is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value variations in the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the added risk of the low down payment? The answer is 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 home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they collect the money, and they get paid if the borrower doesn't pay, different from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook beforehand. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
Because it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has increased in value. After all, all of the appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends indicate declining home values, you should realize 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 understand the market dynamics of their area. At Crest Appraisal Services, we know when property values have risen or declined. We're experts at identifying value trends in Seattle, King County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often cancel the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: