JLD Evaluation, Inc. can help you remove your Private Mortgage InsuranceIt's widely understood that a 20% down payment is common when purchasing a home. The lender's only risk is usually just the remainder between the home value and the balance outstanding on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and typical value variations in the event a purchaser defaults.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the market price of the house is lower than the loan balance.
Since 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. Unlike a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they collect the money, and they get paid if the borrower defaults.
How can a buyer prevent bearing the cost of PMI?As a result of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on most loans. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, acute home owners can get off the hook ahead of time.
Because it can take many years to get to the point where the principal is only 80% of the initial amount of the loan, it's essential to know how your California home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have secured equity before things simmered down.
The toughest thing for many consumers to figure out is just when their home's equity goes over the 20% point. An accredited, California licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At JLD Evaluation, Inc., we're masters at identifying value trends in Rocklin, Placer 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 often cancel the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: