Have equity in your home? Want a lower payment? An appraisal from Reamer Appraisals Inc. can help you get rid of your PMI.When buying a house, a 20% down payment is usually the standard. Since the risk for the lender is oftentimes only the difference between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser defaults.
Lenders were taking down payments discounted to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan guards the lender if a borrower is unable to pay on the loan and the market price of the house is lower than the loan balance.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they obtain the money, and they get paid if the borrower defaults.
How can a home owner avoid bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Smart homeowners can get off the hook beforehand. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Because it can take a significant number of years to reach the point where the principal is just 80% of the initial amount of the loan, it's important to know how your Michigan home has increased in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have gained equity before things cooled off.
A certified, Michigan licensed real estate appraiser can help homeowners figure out if their equity has reached the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Reamer Appraisals Inc., we're experts at analyzing value trends in Traverse City, Grand Traverse County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: