Phoenix Valuations, LLC can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary policy protects the lender in the event a borrower is unable to pay on the loan and the value of the property is lower than what is owed on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. It's advantageous for the lender because they acquire the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner prevent bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise homeowners can get off the hook ahead of time. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Because it can take many years to arrive at the point where the principal is just 20% of the initial loan amount, it's crucial to know how your home has increased in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be minding the national trends and/or your home could have secured equity before things calmed down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Phoenix Valuations, LLC, we're masters at analyzing value trends in Scottsdale, Maricopa County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often cancel the PMI with little trouble. 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: