Let A & B Tax Service help you learn if you can get rid of your PMI
A 20% down payment is typically accepted when purchasing a home. Considering the liability for the lender is generally only the remainder between the home value and the amount due on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and typical value changesin the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender manage the additional 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 house is less than the balance of the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. It's beneficial for the lender because they secure the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, so it's necessary to know how your home has increased in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home could have secured equity before things cooled off, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At A & B Tax Service, we know when property values have risen or declined. We're masters at recognizing value trends in Sturtevant, Racine County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually remove the PMI with little trouble. At which time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: