Let Utah Estate and Trust Appraisals help you learn if you can get rid of your PMI
It's typically inferred that a 20% down payment is accepted when buying a house. Considering the liability for the lender is often only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuationson the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than the loan balance.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they secure the money, and they get paid if the borrower doesn't pay, opposite from a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers avoid paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook sooner than expected. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Because it can take many years to reach the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends signify plunging home values, you should understand that real estate is local.
The toughest thing for most homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At Utah Estate and Trust Appraisals, we know when property values have risen or declined. We're experts at identifying value trends in Ephraim, Sanpete County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: