Bruce W. Reyle Commercial and Residential Real Estate Appraisers & Consultants can help you remove your Private Mortgage Insurance
A 20% down payment is usually the standard when buying a house. The lender's risk is usually only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and typical value changes on the chance that a purchaser is unable to pay.
Lenders were 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 endure the added risk of the minimal down payment with Private Mortgage Insurance or PMI. This added policy protects the lender in case a borrower defaults on the loan and the market price of the house is less than what is owed on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. It's favorable for the lender because they obtain the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can 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 cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart home owners can get off the hook a little early. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Because it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should realize that real estate is local.
The hardest thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At Bruce W. Reyle Commercial and Residential Real Estate Appraisers & Consultants, we know when property values have risen or declined. We're masters at identifying value trends in Fairfax, Fairfax City County and surrounding areas. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little effort. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: