South Placer Appraisal Services can help you remove your Private Mortgage InsuranceA 20% down payment is typically the standard when purchasing a home. The lender's only risk is usually just the difference between the home value and the sum due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations in the event a borrower defaults.
The market was working with down payments discounted to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. It's advantageous for the lender because they acquire the money, and they are covered if the borrower doesn't pay, in contrast to a piggyback loan where the lender takes in all the damages.
How home owners can avoid bearing the cost of PMIThe Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook sooner than expected.
Since it can take many years to get to the point where the principal is only 80% of the original loan amount, it's important to know how your California home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends signify decreasing home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have acquired equity before things simmered down.
The hardest thing for many people to figure out is whether their home equity has exceeded the 20% point. An accredited, California licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At South Placer Appraisal Services, we know when property values have risen or declined. We're experts at determining value trends in Roseville, Placer County, and surrounding areas. When faced with data from an appraiser, the mortgage company will generally remove the PMI with little trouble. At that time, the home owner can enjoy 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