Let ARK Appraisal Services, LLC help you determine if you can eliminate your PMIIt's generally known that a 20% down payment is accepted when purchasing a home. The lender's only exposure is usually just the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value variations on the chance that a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added policy guards the lender in the event a borrower is unable to pay on the loan and the market price of the house is less than the balance of the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the costs, PMI is beneficial for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
How can home owners prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on nearly all loans. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook sooner than expected.
Since it can take a significant number of years to arrive at the point where the principal is only 80% of the original loan amount, it's important to know how your Missouri home has grown in value. After all, all of the appreciation you've gained over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict declining home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have gained equity before things simmered down.
The toughest thing for many consumers to figure out is just when their home's equity goes over the 20% point. An accredited, Missouri licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At ARK Appraisal Services, LLC, we know when property values have risen or declined. We're masters at analyzing value trends in Saint Louis, Saint Louis County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year