Let A & B Tax Service help you determine if you can get rid of your PMI
A 20% down payment is typically accepted when buying a house. Considering the liability for the lender is generally only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuationson the chance that a purchaser is unable to pay.
The market was taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added 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 is unable to pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they collect the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers refrain from bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart homeowners can get off the hook sooner than expected.
It can take countless years to arrive at the point where the principal is just 20% of the initial amount borrowed, so it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends hint at plummeting home values, you should understand that real estate is local.
The hardest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At A & B Tax Service, we're experts at analyzing value trends in Sturtevant, Racine County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: