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 purchasing a home, a 20% down payment is usually the standard. Since the risk for the lender is often only the remainder between the home value and the amount due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and regular value changesin the event a purchaser defaults.
Lenders were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the market price of the property is lower than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. It's favorable for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, acute home owners can get off the hook a little early.
It can take many 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 grown in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends forecast decreasing home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Ken Colley & Associates Inc., we're experts at identifying value trends in Fort Smith, Sebastian County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: