Have equity in your home? Want a lower payment? An appraisal from Flight Appraisal can help you get rid of your PMI.A 20% down payment is usually the standard when buying a house. The lender's only exposure is usually just the remainder between the home value and the balance due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a borrower defaults.
Banks were accepting down payments discounted to 10, 5 and frequently 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. This supplemental plan takes care of the lender in the event a borrower defaults on the loan and the value of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI can be expensive to a borrower. Separate from a piggyback loan where the lender consumes all the deficits, PMI is favorable for the lender because they obtain the money, and they get the money if the borrower doesn't pay.
How can a homeowner refrain from bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to reach the point where the principal is just 80% of the original loan amount, so it's necessary to know how your Michigan home has appreciated in value. After all, any appreciation you've accomplished over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things cooled off.
The toughest thing for most people to figure out is whether their home equity has exceeded the 20% point. An accredited, Michigan licensed real estate appraiser can surely help. It's an appraiser's job to keep up with the market dynamics of their area. At Flight Appraisal, we know when property values have risen or declined. We're masters at determining value trends in Sterling Heights, Macomb County, and surrounding areas. When faced with data from an appraiser, the mortgage company will often cancel the PMI with little trouble. 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: