Let Mountain High Appraisals, LLC help you learn if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's liability is often only the remainder between the home value and the amount due on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value variations in the event a borrower doesn't pay.
The market was working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's profitable for the lender because they collect the money, and they receive payment if the borrower defaults, opposite from 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 homebuyers refrain from paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law pledges that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, wise homeowners can get off the hook a little earlier.
It can take many years to reach the point where the principal is just 20% of the initial amount borrowed, so it's crucial 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 why pay it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends hint at declining home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things calmed down.
The difficult thing for almost all home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Mountain High Appraisals, LLC, we're masters at analyzing value trends in Denver, Denver County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: