Let Capital City Valuation help you discover if you can eliminate your PMIWhen getting a mortgage, a 20% down payment is usually the standard. Since the risk for the lender is usually only the difference between the home value and the sum due on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and regular value fluctuations on the chance that a borrower doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became common to see lenders reducing down payments to 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional policy covers the lender in the event a borrower defaults on the loan and the market price of the home is less than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. It's favorable for the lender because they secure the money, and they get paid if the borrower doesn't pay, different from a piggyback loan where the lender takes in all the losses.
How buyers can avoid paying PMIThe Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen home owners can get off the hook beforehand. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent.
Because it can take many years to get to the point where the principal is only 80% of the initial loan amount, it's important to know how your California home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends forecast falling home values, be aware that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have acquired equity before things cooled off.
The toughest thing for almost all consumers to determine is just when their home's equity goes over the 20% point. An accredited, California licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Capital City Valuation, we're masters at determining value trends in Sacramento, Sacramento County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
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