Let Professional Appraisal Group help you learn if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender’s risk is generally only the remainder between the home value and the amount remaining on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, reselling the home, and natural value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn that our country recently experienced, it was common to see lenders only asking for down payments of 10, 5, 3 or even 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case 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.
PMI is pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn’t even tax deductible. It’s money-making for the lender because they acquire the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender consumes all the losses.
How homebuyers can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Acute homeowners can get off the hook a little early. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is only 80% of the initial loan amount, so it’s necessary to know how your Michigan home has increased in value. After all, every bit of appreciation you’ve acquired over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not follow national trends and/or your home might have acquired equity before things cooled off. So even when nationwide trends predict declining home values, you should understand that real estate is local.
An accredited, Michigan licensed real estate appraiser can help homeowners figure out if their equity has exceeed the 20% point, as it’s a tough thing to know. It is an appraiser’s job to understand the market dynamics of their area. At Professional Appraisal Group, we know when property values have risen or declined. We’re masters at recognizing value trends in Waterford, Oakland County, and surrounding areas. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.