Let Ruffino Appraisal Group, LLC. help you decide if you can eliminate your PMI
A 20% down payment is typically the standard when purchasing a home. Because the liability for the lender is often only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuationsin the event a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the market price of the house is less than what is owed on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible. It's lucrative for the lender because they secure the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise homeowners can get off the hook beforehand. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home could have secured equity before things calmed down, so even when nationwide trends predict declining home values, you should understand that real estate is local.
The hardest thing for most home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At Ruffino Appraisal Group, LLC., we know when property values have risen or declined. We're experts at determining value trends in Margate, Broward County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: