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 buying a house, a 20% down payment is usually the standard. The lender's liability is often only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan protects the lender if a borrower defaults on the loan and the value of the house is less than what the borrower still owes on the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get the money if the borrower defaults, separate from 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 refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things settled down, so even when nationwide trends hint at falling home values, you should understand that real estate is local.
The toughest thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At The August Group Inc., we know when property values have risen or declined. We're experts at identifying value trends in St Louis, Saint Louis County and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually eliminate the PMI with little trouble. At that time, the homeowner 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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