Have equity in your home? Want a lower payment? An appraisal from Lightspeed Appraisal Group can help you get rid of your PMI.It's typically known that a 20% down payment is common when buying a house. The lender's only risk is typically just the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value variations on the chance that a borrower is unable to pay.
The market was accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower defaults on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. It's profitable for the lender because they obtain the money, and they get paid if the borrower defaults, separate from a piggyback loan where the lender absorbs all the damages.
How can home owners avoid bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. The law states that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little earlier.
It can take several years to get to the point where the principal is only 80% of the initial amount of the loan, so it's essential to know how your Colorado home has increased in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends hint at declining home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home might have secured equity before things cooled off.
An accredited, Colorado licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to know the market dynamics of their area. At Lightspeed Appraisal Group, we're experts at determining value trends in Wheat Ridge, Jefferson 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 most often eliminate the PMI with little effort. At that 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: