Have equity in your home? Want a lower payment? An appraisal from Lobos Appraisers 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 usually only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender endure the added risk of the small down payment? The solution is 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 home is less than the balance of the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they acquire the money, and they get paid if the borrower defaults.
How can home owners avoid bearing the cost of PMI?The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy home owners can get off the hook ahead of time.
Because it can take a significant number of years to get to the point where the principal is only 80% of the original loan amount, it's important to know how your Maryland home has appreciated in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home could have gained equity before the economy declined. So even when nationwide trends forecast falling home values, you should know most importantly that real estate is local.
The toughest thing for most people to figure out is whether their home equity has exceeded the 20% point. A certified, Maryland licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Lobos Appraisers, we recognize value trends in Baltimore, Harford, Cecil, Kent, Queen Annes and Talbot Counties and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. 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: