Let Childress Appraisals help you figure out if you can eliminate your PMIWhen buying a house, a 20% down payment is usually the standard. Since the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and natural value fluctuations in the event a borrower doesn't pay.
Banks were accepting down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the market price of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they collect the money, and they get paid if the borrower is unable to pay, unlike a piggyback loan where the lender absorbs all the losses.
How homebuyers can avoid bearing the expense of PMIWith the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on nearly all loans. Smart homeowners can get off the hook sooner than expected. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Considering it can take many years to reach the point where the principal is just 80% of the initial amount borrowed, it's essential to know how your California home has appreciated in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate decreasing home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have secured equity before things simmered down.
The hardest thing for most consumers to determine is whether their home equity has exceeded the 20% point. A certified, California licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Childress Appraisals, we're masters at determining value trends in Laguna Niguel, Orange County, and surrounding areas, and we know when property values have risen or declined. Faced with information 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: