Let Taranto Appraisal, Inc. help you discover if you can cancel your PMIIt's widely known that a 20% down payment is accepted when purchasing a home. The lender's only risk is generally just the remainder between the home value and the balance remaining on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser doesn't pay.
Banks were accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the market price of the property is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times 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 buyers can avoid bearing the cost of PMIWith the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on most loans. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, keen home owners can get off the hook ahead of time.
It can take a significant number of years to reach the point where the principal is just 80% of the initial loan amount, so it's crucial to know how your California home has increased in value. After all, any appreciation you've achieved over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict lower overall home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things simmered down.
The toughest thing for many homeowners to determine is just when their home's equity rises above the 20% point. An accredited, California licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At Taranto Appraisal, Inc., we're experts at analyzing value trends in Woodland Hills, Los Angeles County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often do away with 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year