COFFMAN APPRAISAL SERVICES can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. Because the risk for the lender is generally only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value variations in the event a borrower is unable to pay.During the recent mortgage upturn of the last decade, it was common to see lenders reducing down payments to 10, 5, 3 or even 0 percent. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the home is less than the loan balance. Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender consumes all the losses, PMI is favorable for the lender because they obtain the money, and they are covered if the borrower doesn't pay.
How can a homeowner keep from paying PMI?The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook sooner than expected. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.It can take several years to get to the point where the principal is only 80% of the original loan amount, so it's important to know how your California home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home might have gained equity before the economy cooled off. So even when nationwide trends forecast falling home values, you should realize that real estate is local. An accredited, California licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At COFFMAN APPRAISAL SERVICES, we're masters at recognizing value trends in Vista, San Diego County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually cancel the PMI with little trouble. At which time, the homeowner can delight in 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
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