Landmark Appraisal can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. The lender's risk is often only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower doesn't pay.
The market was working with down payments discounted to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the property is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they collect the money, and they are covered if the borrower is unable to pay.
How can a homebuyer keep from bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on nearly all loans. Wise home owners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take a significant number of years to get to the point where the principal is only 80% of the original loan amount, so it's important to know how your California home has increased in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home might have secured equity before the economy declined. So even when nationwide trends indicate falling home values, you should realize that real estate is local.
A certified, California licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Landmark Appraisal, we know when property values have risen or declined. We're experts at identifying value trends in Menifee, Riverside County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little effort. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: