Let Gregory James Company, Inc. help you decide if you can get rid of your PMI
It's generally known that a 20% down payment is the standard when buying a house. The lender's liability is oftentimes only the remainder between the home value and the sum remaining on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value changes in the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the worth of the home is lower than what is owed on the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible. It's profitable for the lender because they collect the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers keep from paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart homeowners can get off the hook ahead of time. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's essential to know how your home has grown in value. After all, every bit of appreciation you've obtained 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 might not be adopting the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends hint at plunging home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Gregory James Company, Inc., we're masters at recognizing value trends in Cedartown, Polk County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At which 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: