Have equity in your home? Want a lower payment? An appraisal from Ken Colley & Associates Inc. can help you get rid of your PMI.
When buying a house, a 20% down payment is usually the standard. Because the liability for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value changesin the event a borrower doesn't pay.
Lenders were taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the property is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they collect the money, and they receive payment 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 a home buyer keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen home owners can get off the hook sooner than expected.
Because it can take countless years to get to the point where the principal is only 20% of the original loan amount, it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have secured equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to understand the market dynamics of their area. At Ken Colley & Associates Inc., we're masters at identifying value trends in Fort Smith, Sebastian County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally remove the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: