Have equity in your home? Want a lower payment? An appraisal from Hampton Roads Valuations can help you get rid of your PMI.When buying a house, a 20% down payment is usually the standard. The lender's risk is generally only the remainder between the home value and the balance remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value changes in the event a borrower doesn't pay.
The market was taking down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and on many occasions isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the deficits, PMI is favorable for the lender because they secure the money, and they receive payment if the borrower defaults.
How can home buyers keep from bearing the expense of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically cease 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 equals only 80 percent. So, smart homeowners can get off the hook a little early.
Because it can take a significant number of years to arrive at the point where the principal is just 80% of the initial amount borrowed, it's necessary to know how your Virginia home has grown in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home might have secured equity before the economy cooled off. So even when nationwide trends signify a reduction in home values, you should know most importantly that real estate is local.
A certified, Virginia licensed real estate appraiser can help home owners figure out if their equity has exceeed the 20% point, as it's a hard thing to know. It's an appraiser's job to know the market dynamics of their area. At Hampton Roads Valuations, we know when property values have risen or declined. We're experts at identifying value trends in Hampton Roads and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year