Let Sound Appraisal Group, Inc help you figure out if you can get rid of your PMIIt's generally inferred that a 20% down payment is accepted when getting a mortgage. The lender's only risk is typically just the difference between the home value and the balance due on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and natural value changes on the chance that a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became customary to see lenders reducing down payments to 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the value of the home is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they collect the money, and they get paid if the borrower defaults.
How can a homeowner prevent paying PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, smart homeowners can get off the hook a little earlier.
Since it can take many years to arrive at the point where the principal is just 80% of the original loan amount, it's essential to know how your Washington home has grown in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not adhere to national trends and/or your home could have gained equity before things cooled off. So even when nationwide trends forecast a reduction in home values, you should know most importantly that real estate is local.
The toughest thing for almost all homeowners to determine is whether their home equity has exceeded the 20% point. A certified, Washington licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At Sound Appraisal Group, Inc, we're experts at recognizing value trends in Silverdale, Kitsap County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the home owner can delight in the savings from that point on.
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