Let Central Iowa Appraisers help you learn if you can eliminate your PMIWhen buying a house, a 20% down payment is usually the standard. Because the risk for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value variations in the event a borrower defaults.
The market was accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the market price of the home is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and on many occasions isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, as opposed to a piggyback loan where the lender takes in all the damages.
How can home buyers refrain from paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on nearly all loans. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, acute home owners can get off the hook a little early.
Considering it can take many years to reach the point where the principal is only 80% of the original amount borrowed, it's necessary to know how your Iowa home has appreciated in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not follow national trends and/or your home might have acquired equity before things declined. So even when nationwide trends hint at a reduction in home values, you should know most importantly that real estate is local.
The hardest thing for most homeowners to determine is just when their home's equity goes over the 20% point. An accredited, Iowa licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Central Iowa Appraisers, we know when property values have risen or declined. We're experts at analyzing value trends in Des Moines, Polk County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: