Let KEN GREEN APPRAISALS help you figure out if you can eliminate your PMIWhen getting a mortgage, a 20% down payment is typically the standard. Considering the liability for the lender is usually only the difference between the home value and the sum due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and natural value variations in the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders reducing down payments to 10, 5 or often 0 percent. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the market price of the house is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they obtain the money, and they get the money if the borrower defaults, as opposed to a piggyback loan where the lender absorbs all the damages.
How can a buyer refrain from paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart home owners can get off the hook sooner than expected.
It can take several years to reach the point where the principal is only 80% of the original amount borrowed, so it's necessary to know how your Alabama home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends predict declining home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have secured equity before things simmered down.
The toughest thing for almost all consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Alabama licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At KEN GREEN APPRAISALS, we're experts at recognizing value trends in Montgomery, Montgomery County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little trouble. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: