Have equity in your home? Want a lower payment? An appraisal from Collins Appraisal Service, LLC can help you get rid of your PMI.A 20% down payment is typically accepted when getting a mortgage. Because the risk for the lender is oftentimes only the difference between the home value and the sum due on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and regular value variations in the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders making deals with down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender consumes all the losses, PMI is lucrative for the lender because they obtain the money, and they are covered if the borrower is unable to pay.
How can a buyer refrain from bearing the cost of PMI?The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook a little early.
Since it can take many 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 Washington home has increased in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not follow national trends and/or your home could have secured equity before the economy simmered down. So even when nationwide trends forecast a reduction in home values, you should know most importantly that real estate is local.
The toughest thing for many people to figure out is whether their home equity has exceeded the 20% point. An accredited, Washington licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Collins Appraisal Service, LLC, we're masters at identifying value trends in Spokane Valley, Spokane County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will most often drop the PMI with little effort. 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:
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