Have equity in your home? Want a lower payment? An appraisal from Jarrett Appraisal Services can help you get rid of your PMI.It's typically understood that a 20% down payment is accepted when purchasing a home. The lender's only risk is usually just the difference between the home value and the amount due on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became common to see lenders reducing down payments to 10, 5 or even 0 percent. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan protects the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they obtain the money, and they are covered if the borrower doesn't pay, as opposed to a piggyback loan where the lender absorbs all the damages.
How buyers can refrain from bearing the cost of PMIAs a result of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on nearly all loans. The law stipulates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, acute home owners can get off the hook a little earlier.
Because it can take a significant number of years to arrive at the point where the principal is only 80% of the initial amount of the loan, it's important to know how your Virginia home has grown in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home may have secured equity before things declined. So even when nationwide trends forecast declining home values, you should know most importantly that real estate is local.
The difficult thing for many consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Virginia licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Jarrett Appraisal Services, we're experts at pinpointing value trends in Salem, Salem County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At which time, the homeowner can retain 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