Have equity in your home? Want a lower payment? An appraisal from Martin Slee can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. Because the risk for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value changes on the chance that a borrower doesn't pay.The market was working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional policy takes care of the lender in case a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan. Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they collect the money, and they are covered if the borrower doesn't pay, different from a piggyback loan where the lender consumes all the losses.
How can home owners refrain from paying PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy home owners can get off the hook ahead of time.Considering it can take several years to get to the point where the principal is just 80% of the initial amount of the loan, it's necessary to know how your California home has appreciated in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends indicate falling home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things cooled off. A certified, California licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a tough thing to know. It's an appraiser's job to know the market dynamics of their area. At Martin Slee, we're masters at recognizing value trends in Danville, Contra Costa County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little effort. At that time, the home owner can relish 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
|
||||||||||||||||||
