Have equity in your home?
Want a lower payment?
VolkHaus Appraisals can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. Since the liability for the lender is generally only the difference between the home value and the sum remaining on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and typical value changes on the chance that a purchaser doesn't pay.
Lenders were taking down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the additional risk of the low down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than the loan balance.
PMI is pricey to a borrower 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. Instead of a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they obtain the money, and they receive payment if the borrower defaults.
How can a home owner avoid bearing the cost of PMI?
With the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on most loans. Savvy homeowners can get off the hook a little early. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take several years to arrive at the point where the principal is only 80% of the original loan amount, so it's essential to know how your Colorado home has grown in value. After all, any appreciation you've obtained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not adhere to national trends and/or your home could have gained equity before things declined. So even when nationwide trends predict falling home values, you should understand that real estate is local.
An accredited, Colorado licensed real estate appraiser can help homeowners figure out if their equity has exceeed 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 VolkHaus Appraisals, we're experts at determining value trends in Denver, Denver County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little trouble. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: