Have equity in your home? Want a lower payment? An appraisal from Thomas W. Steinhart can help you get rid of your PMI.
A 20% down payment is typically the standard when getting a mortgage. Because the liability for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuationsin the event a purchaser is unable to pay.
The market was working with 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 additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the market price of the home is lower than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. It's favorable for the lender because they obtain the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender absorbs 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 a homeowner avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces 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. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook a little early.
It can take many years to arrive at the point where the principal is only 20% of the original loan amount, so it's important to know how your home has grown in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends forecast decreasing home values, you should realize that real estate is local.
The toughest thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Thomas W. Steinhart, we're masters at determining value trends in Westfield, Hamilton County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often remove the PMI with little anxiety. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: