Have equity in your home? Want a lower payment? An appraisal from The August Group Inc. can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is usually only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and typical value variations in the event a borrower defaults.
Lenders were accepting down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they secure the money, and they get the money if the borrower doesn't pay, contradictory to a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer keep from bearing the expense of PMI?
With the utilization 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 initial loan amount. Smart home owners can get off the hook ahead of time. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has increased in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends indicate plummeting home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home could have secured equity before things simmered down.
The toughest thing for most homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At The August Group Inc., we're experts at pinpointing 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 do away with the PMI with little trouble. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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