Have equity in your home? Want a lower payment? An appraisal from JH Valuations can help you get rid of your PMI.A 20% down payment is usually the standard when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the balance remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower is unable to pay.
Lenders were working with down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. As opposed to a piggyback loan where the lender takes in all the deficits, PMI is money-making for the lender because they collect the money, and they are covered if the borrower doesn't pay.
How buyers can avoid bearing the expense of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on nearly all loans. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take several years to get to the point where the principal is only 80% of the initial amount borrowed, so it's important to know how your California home has appreciated in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends indicate lower overall home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things declined.
The difficult thing for many homeowners to determine is just when their home's equity rises above the 20% point. A certified, California licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At JH Valuations, we're experts at recognizing value trends in Tarzana, Los Angeles County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little effort. 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: