Let Associated Independent Appraisers help you decide if you can get rid of your PMIWhen purchasing a home, a 20% down payment is usually the standard. The lender's only risk is usually just the remainder between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, selling the home again, and natural value changes on the chance that a borrower doesn't pay.
Banks were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplemental plan covers the lender in the event a borrower doesn't pay on the loan and the value of the property is lower than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. It's lucrative for the lender because they secure the money, and they receive payment if the borrower is unable to pay, as opposed to a piggyback loan where the lender consumes all the costs.
How homeowners can prevent paying PMIThe Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy home owners can get off the hook sooner than expected.
It can take several years to arrive at the point where the principal is only 80% of the initial amount of the loan, so it's necessary to know how your Oregon home has grown in value. After all, all of the appreciation you've achieved over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not follow national trends and/or your home could have acquired equity before things declined. So even when nationwide trends predict decreasing home values, you should know most importantly that real estate is local.
The hardest thing for most homeowners to determine is whether their home equity has exceeded the 20% point. An accredited, Oregon licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Associated Independent Appraisers, we know when property values have risen or declined. We're experts at recognizing value trends in Salem, Marion County, and surrounding areas. Faced with data from an appraiser, the mortgage company will most often remove 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: