Let Bay Area Appraisal Services Inc. help you discover if you can cancel your PMIWhen buying a house, a 20% down payment is typically the standard. Because the risk for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and regular value changes in the event a borrower defaults.
Banks were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan protects the lender if a borrower defaults on the loan and the value of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they obtain the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender consumes all the deficits.
How can a home owner refrain from bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on nearly all loans. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook sooner than expected.
It can take a significant number of years to arrive at the point where the principal is only 80% of the initial amount of the loan, so it's essential to know how your Florida home has grown in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not adhere to national trends and/or your home could have acquired equity before things cooled off. So even when nationwide trends signify falling home values, you should know most importantly that real estate is local.
The hardest thing for many homeowners to figure out is whether their home equity has exceeded the 20% point. An accredited, Florida licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Bay Area Appraisal Services Inc., we know when property values have risen or declined. We're masters at determining value trends in Tampa, Hillsborough County, and surrounding areas. Faced with data from an appraiser, the mortgage company will often remove the PMI with little effort. 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