Crescent Appraisal Group, Inc. can help you remove your Private Mortgage Insurance
It's widely understood that a 20% down payment is the standard when buying a house. The lender's risk is usually only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the house is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI can be pricey to a borrower. It's favorable for the lender because they acquire the money, and they get the money if the borrower doesn't pay, opposite 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 homebuyers can prevent paying PMI
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law designates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've obtained over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things simmered down.
The hardest thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Crescent Appraisal Group, Inc., we know when property values have risen or declined. We're masters at determining value trends in Metairie, Jefferson County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often cancel the PMI with little effort. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: