Let JAD Appraisal Services, LLC help you decide if you can cancel your PMIA 20% down payment is typically accepted when getting a mortgage. The lender's only risk is often just the remainder between the home value and the balance outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and natural value changes in the event a borrower defaults.
Banks were accepting down payments discounted to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan protects the lender in the event a borrower doesn't pay on the loan and the market price of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled 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 takes in all the costs, PMI is favorable for the lender because they secure the money, and they receive payment if the borrower doesn't pay.
How can a home owner prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law states 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 sooner than expected.
It can take many years to reach the point where the principal is only 80% of the initial loan amount, so it's essential to know how your Michigan home has appreciated in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things simmered down.
The hardest thing for almost all homeowners to determine is just when their home's equity rises above the 20% point. A certified, Michigan licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At JAD Appraisal Services, LLC, we know when property values have risen or declined. We're masters at analyzing value trends in Rochester, Oakland County, and surrounding areas. Faced with information from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: