Let Price Appraisals & Realty, LLC help you figure out if you can eliminate your PMI
It's largely inferred that a 20% down payment is accepted when buying a house. Considering the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value variationson the chance that a purchaser doesn't pay.
Lenders were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they collect the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners refrain from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook a little earlier. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is just 20% of the original amount borrowed, so it's essential to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things cooled off, so even when nationwide trends hint at falling home values, you should understand that real estate is local.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Price Appraisals & Realty, LLC, we know when property values have risen or declined. We're masters at pinpointing value trends in Lakeway, Travis County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little trouble. 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: