Let Skylight Evaluations help you learn if you can eliminate your PMIWhen purchasing a home, a 20% down payment is typically the standard. The lender's liability is often only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value variations in the event a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders reducing down payments to 10, 5, 3 or even 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower defaults on the loan and the value of the house is lower than the loan balance.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. It's profitable for the lender because they collect the money, and they are covered if the borrower doesn't pay, different from a piggyback loan where the lender takes in all the damages.
How can a home owner refrain from bearing the expense of PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart home owners can get off the hook sooner than expected.
It can take a significant number of years to arrive at the point where the principal is just 80% of the initial amount of the loan, so it's important to know how your Georgia home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have secured equity before things cooled off.
The hardest thing for almost all consumers to determine is just when their home's equity rises above the 20% point. An accredited, Georgia licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At Skylight Evaluations, we know when property values have risen or declined. We're masters at pinpointing value trends in Lithonia, Dekalb County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that 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: