Let Capraro Appraisal Company, Inc. help you decide if you can eliminate your PMI
When buying a house, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a borrower defaults.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, unlike a piggyback loan where the lender absorbs all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Savvy homeowners can get off the hook beforehand. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Because it can take many years to get to the point where the principal is just 20% of the initial amount of the loan, it's important to know how your home has appreciated in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying 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 acquired equity before things simmered down, so even when nationwide trends indicate decreasing home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Capraro Appraisal Company, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in North Providence, Providence County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally drop the PMI with little anxiety. 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: