Milwaukee Appraisal Co./Stowe Appraisals can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is typically the standard. Because the risk for the lender is generally only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value changeson the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower defaults on the loan and the value of the property is less than what the borrower still owes 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 can be costly to a borrower. Unlike a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they secure the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Wise home owners can get off the hook a little earlier. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Since it can take countless years to get to the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home might have secured equity before things settled down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Milwaukee Appraisal Co./Stowe Appraisals, we're masters at recognizing value trends in Franklin, Milwaukee County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At that 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: