Let Furr Appraisal Service help you figure out if you can eliminate your PMI
A 20% down payment is typically accepted when purchasing a home. The lender's risk is often only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and typical value changes in the event a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan guards the lender if a borrower doesn't pay on the loan and the value of the property is lower than the loan balance.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they receive payment if the borrower defaults, opposite 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 buyers can avoid paying PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart homeowners can get off the hook sooner than expected. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount of the loan, so it's necessary to know how your home has increased in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate declining home values, realize that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things settled down.
The toughest thing for most home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Furr Appraisal Service, we're experts at identifying value trends in Camden, Benton County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: