Have equity in your home? Want a lower payment? An appraisal from Elite Appraisal Group can help you get rid of your PMI.When purchasing a home, a 20% down payment is usually the standard. Because 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 cushion against the expenses of foreclosure, reselling the home, and typical value changes on the chance that a borrower is unable to pay.
The market was working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the value of the home is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they secure the money, and they get the money if the borrower is unable to pay, as opposed to a piggyback loan where the lender takes in all the costs.
How can home buyers refrain from bearing the expense of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on most loans. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook sooner than expected.
It can take a significant number of years to reach the point where the principal is only 80% of the original amount of the loan, so it's essential to know how your California home has grown in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not conform to national trends and/or your home may have acquired equity before things cooled off. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
An accredited, California licensed real estate appraiser can help home owners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Elite Appraisal Group, we're experts at determining value trends in Costa Mesa, Orange County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often remove the PMI with little trouble. At that time, the homeowner can relish the savings from that point on.
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