Let Phoenix Valuations, LLC help you decide if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. Considering the liability for the lender is oftentimes only the remainder between the home value and the sum due on the loan, the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and regular value changesin the event a purchaser is unable to pay.
The market was accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the house is less 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 rolled into the mortgage payment and oftentimes isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they secure the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers prevent bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook beforehand. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Since it can take many years to reach the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends forecast plunging home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have secured equity before things calmed down.
The difficult thing for most home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Phoenix Valuations, LLC, we know when property values have risen or declined. We're masters at recognizing value trends in Scottsdale, Maricopa County and surrounding areas. Faced with data from an appraiser, the mortgage company will most 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: