Let South Sound Appraisal, Inc. help you decide if you can get rid of your PMIA 20% down payment is typically accepted when purchasing a home. The lender's only risk is generally just the difference between the home value and the balance outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value fluctuations in the event a borrower doesn't pay.During the recent mortgage boom of the last decade, it was customary to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan. PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they secure the money, and they are covered if the borrower defaults.
How can home buyers prevent bearing the expense of PMI?The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Wise homeowners can get off the hook ahead of time. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.It can take a significant number of years to arrive at the point where the principal is only 80% of the original amount of the loan, so it's necessary to know how your Washington home has appreciated in value. After all, every bit of 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 may not follow national trends and/or your home could have secured equity before things cooled off. So even when nationwide trends forecast falling home values, you should realize that real estate is local. The hardest thing for most people to figure out is just when their home's equity rises above the 20% point. A certified, Washington licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At South Sound Appraisal, Inc., we know when property values have risen or declined. We're masters at determining value trends in Spanaway, Pierce County, and surrounding areas. When faced with information from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At which time, the homeowner 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
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