Schuster Appraisals can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is usually the standard. The lender's liability is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the worth of the house is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and generally isn't even tax deductible. It's money-making for the lender because they collect the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer refrain from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen home owners can get off the hook a little earlier. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
Considering it can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's important to know how your home has increased in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be following the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends signify declining home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Schuster Appraisals, we're masters at pinpointing value trends in Olathe, Johnson County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often drop 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: