Have equity in your home? Want a lower payment? An appraisal from California Coast Appraisals can help you get rid of your PMI.When purchasing a home, a 20% down payment is usually the standard. The lender's risk is often only the difference between the home value and the amount due on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.During the recent mortgage boom of the last decade, it became common to see lenders only asking for down payments of 10, 5, 3 or sometimes 0 percent. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the value of the property is less than the loan balance. Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they obtain the money, and they get the money if the borrower defaults, as opposed to a piggyback loan where the lender consumes all the deficits.
How can buyers prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on nearly all loans. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, keen home owners can get off the hook a little earlier. (New rules apply to FHA loans, call us for more info on this)It can take many years to arrive at the point where the principal is only 80% of the original amount borrowed, so it's necessary to know how your California home has grown in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Some who purchased their homes early in 2011 may already be at this threshold! A certified, California licensed real estate appraiser can help homeowners figure out if their equity has reached the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At California Coast Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Placer, Sacramento, San Joaquin, and surrounding counties. When faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little effort. 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
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