Let Murray Appraisal Services, Inc. help you decide if you can cancel your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is oftentimes only the difference between the home value and the amount due on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value changes on the chance that a borrower is unable to pay.
Banks were accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the worth of the house is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they collect the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer avoid paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy homeowners can get off the hook beforehand. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Because it can take countless years to reach the point where the principal is only 20% of the original loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've acquired over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends signify falling home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home might have acquired equity before things settled down.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Murray Appraisal Services, Inc., we know when property values have risen or declined. We're experts at identifying value trends in Spotsylvania, Henrico County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little trouble. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: