Have equity in your home? Want a lower payment? An appraisal from Mike Jones Appraisals can help you get rid of your PMI.A 20% down payment is usually accepted when getting a mortgage. Since the risk for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower defaults.
The market was working with down payments as low as 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender endure the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan covers the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. It's favorable for the lender because they secure the money, and they get paid if the borrower doesn't pay, as opposed to a piggyback loan where the lender absorbs all the losses.
How can a homebuyer refrain from bearing the expense of PMI?The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook beforehand. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
Considering it can take many years to get to the point where the principal is just 80% of the initial amount of the loan, it's crucial to know how your Iowa home has grown in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home might have gained equity before the economy simmered down. So even when nationwide trends indicate falling home values, you should understand that real estate is local.
The hardest thing for many consumers to determine is just when their home's equity goes over the 20% point. A certified, Iowa licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Mike Jones Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Coralville, Johnson County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually remove the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: