Allred Certified Appraisals can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is usually the standard. Because the liability for the lender is generally only the difference between the home value and the sum due on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and regular value changes on the chance that a purchaser doesn't pay.Banks were accepting down payments discounted to 10, 5 and frequently 0 percent during the mortgage boom of the mid 2000s. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the value of the home is less than the balance of the loan. Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they secure the money, and they get paid if the borrower doesn't pay, separate from a piggyback loan where the lender takes in all the losses.
How can home owners refrain from bearing the cost of PMI?The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook ahead of time.Since it can take several years to arrive at the point where the principal is just 80% of the initial amount borrowed, it's crucial to know how your California home has appreciated in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not adhere to national trends and/or your home may have acquired equity before the economy cooled off. So even when nationwide trends hint at a reduction in home values, you should realize that real estate is local. The difficult thing for many homeowners to figure out is whether their home equity has exceeded the 20% point. A certified, California licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At Allred Certified Appraisals, we're experts at analyzing value trends in Sacramento, Sacramento County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At which 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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