Have equity in your home? Want a lower payment? An appraisal from Staton and Associates, LLC can help you get rid of your PMI.A 20% down payment is usually the standard when purchasing a home. Since the risk for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value fluctuations in the event a purchaser is unable to pay.
Banks were accepting down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the market price of the house is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often 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 are covered if the borrower defaults, different from a piggyback loan where the lender takes in all the losses.
How can a homebuyer keep from bearing the expense of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on nearly all loans. Smart home owners can get off the hook a little early. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take a significant number of years to get to the point where the principal is just 80% of the original amount of the loan, so it's crucial to know how your Arkansas home has grown in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home may have gained equity before things simmered down.
The difficult thing for most consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Arkansas licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Staton and Associates, LLC, we're experts at recognizing value trends in Jonesboro, Craighead 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 drop the PMI with little effort. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: