Let Aurora Appraisals help you figure out if you can get rid of your PMIWhen purchasing a home, a 20% down payment is typically the standard. Because the liability for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and natural value fluctuations in the event a borrower doesn't pay.
The market was working with down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the value of the property is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they acquire the money, and they are covered if the borrower doesn't pay, in contrast to a piggyback loan where the lender absorbs all the deficits.
How buyers can prevent bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, acute home owners can get off the hook a little earlier.
It can take several years to reach the point where the principal is only 80% of the initial amount borrowed, so it's crucial to know how your Washington home has increased in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends hint at declining home values, realize that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have secured equity before things simmered down.
The hardest thing for almost all consumers to determine is just when their home's equity goes over the 20% point. A certified, Washington licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Aurora Appraisals, we know when property values have risen or declined. We're experts at identifying value trends in Chelan, Chelan County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little effort. 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: