Have equity in your home? Want a lower payment? An appraisal from Hawaiian Appraisals can help you get rid of your PMI.A 20% down payment is typically accepted when purchasing a home. Because the liability for the lender is often only the difference between the home value and the amount due on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value changes in the event a borrower defaults.
The market was working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to endure the increased risk of the small down payment with Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they obtain the money, and they get the money if the borrower is unable to pay, unlike a piggyback loan where the lender consumes all the deficits.
How can home buyers prevent paying PMI?The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Keen homeowners can get off the hook a little earlier. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take several years to arrive at the point where the principal is just 80% of the initial amount borrowed, so it's necessary to know how your Hawaii home has appreciated in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict falling home values, realize that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things cooled off.
An accredited, Hawaii licensed real estate appraiser can help homeowners figure out if their equity has reached the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Hawaiian Appraisals, we know when property values have risen or declined. We're masters at pinpointing value trends in Kailua Kona, Hawaii County, and surrounding areas. When faced with data from an appraiser, the mortgage company will often cancel the PMI with little trouble. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: