Have equity in your home? Want a lower payment? An appraisal from The August Group Inc. can help you get rid of your PMI.
It's widely known that a 20% down payment is the standard when getting a mortgage. The lender's liability is oftentimes only the remainder between the home value and the sum due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
Lenders were working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Unlike a piggyback loan where the lender consumes all the losses, PMI is beneficial for the lender because they collect the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer prevent paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning 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, wise home owners can get off the hook a little early.
It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends signify plunging home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home could have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to understand the market dynamics of our area. At The August Group Inc., we're experts at determining value trends in St Louis, Saint Louis 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 generally drop the PMI with little trouble. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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