Let Elias Salas, Jr. help you decide if you can get rid of your PMIWhen getting a mortgage, a 20% down payment is usually the standard. Considering the liability for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value variations on the chance that a purchaser is unable to pay.During the recent mortgage upturn of the mid 2000s, it became customary to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the property is lower than the loan balance. Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's money-making for the lender because they collect the money, and they receive payment if the borrower defaults, as opposed to a piggyback loan where the lender takes in all the costs.
How home owners can avoid bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise home owners can get off the hook a little early. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.Since it can take many years to get to the point where the principal is only 80% of the initial amount borrowed, it's essential to know how your California home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends hint at decreasing home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things declined. An accredited, California licensed real estate appraiser can help home owners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Elias Salas, Jr., we're masters at recognizing value trends in Stockton, San Joaquin County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little trouble. 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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