Have equity in your home? Want a lower payment? An appraisal from Northeastern Ohio Appraisal Services can help you get rid of your PMI.A 20% down payment is typically the standard when purchasing a home. The lender's only exposure is typically just the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became customary to see lenders making deals with down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the value of the house is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they collect the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the deficits.
How can homeowners keep from bearing the expense of PMI?As a result of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original 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 equals only 80 percent. So, savvy home owners can get off the hook sooner than expected.
It can take a significant number of years to reach the point where the principal is only 80% of the initial amount borrowed, so it's essential to know how your Ohio home has appreciated in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends hint at declining home values, be aware that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have secured equity before things cooled off.
The hardest thing for almost all people to determine is just when their home's equity goes over the 20% point. An accredited, Ohio licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Northeastern Ohio Appraisal Services, we know when property values have risen or declined. We're masters at identifying value trends in Warren, Trumbull County, and surrounding areas. When faced with data from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At which time, the homeowner can enjoy 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