Have equity in your home? Want a lower payment? An appraisal from KLF Residential Appraisals can help you get rid of your PMI.When buying a house, a 20% down payment is usually the standard. The lender's risk is generally only the difference between the home value and the balance remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value changes in the event a borrower is unable to pay.
During the recent mortgage upturn that our country recently experienced, it was common to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's beneficial for the lender because they secure the money, and they get the money if the borrower doesn't pay, as opposed to a piggyback loan where the lender takes in all the losses.
How homeowners can avoid bearing the expense of PMIWith the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on nearly all loans. Keen home owners can get off the hook a little earlier. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.
It can take many years to reach the point where the principal is only 80% of the original amount borrowed, so it's essential to know how your Maryland home has grown in value. After all, all of the appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends forecast declining home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have gained equity before things cooled off.
The hardest thing for almost all people to determine is whether their home equity has exceeded the 20% point. A certified, Maryland licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At KLF Residential Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Baltimore, Baltimore County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the home owner can retain 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