Have equity in your home? Want a lower payment? An appraisal from Valley Appraisals, Inc can help you get rid of your PMI.When purchasing a home, a 20% down payment is typically the standard. Since the risk for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn that our country recently experienced, it was customary to see lenders making deals with down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's money-making for the lender because they secure the money, and they are covered if the borrower defaults, as opposed to a piggyback loan where the lender consumes all the costs.
How home buyers can refrain from paying PMIThe Homeowners Protection Act of 1998 forces the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, smart home owners can get off the hook a little earlier.
Considering it can take several years to get to the point where the principal is only 80% of the original amount borrowed, it's crucial to know how your Colorado home has grown in value. After all, every bit of appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home may have secured equity before the economy cooled off. So even when nationwide trends predict declining home values, you should know most importantly that real estate is local.
A certified, Colorado licensed real estate appraiser can help homeowners figure out if their equity has exceeed the 20% point, as it's a hard thing to know. It's an appraiser's job to know the market dynamics of their area. At Valley Appraisals, Inc, we're experts at analyzing value trends in Snowmass, Pitkin 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 most often do away with the PMI with little effort. At that 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: