About PMI

ValPros can help you remove your Private Mortgage Insurance

A 20% down payment is usually the standard when purchasing a home.

The lender’s only liability is often just the difference between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value variations on the chance that a purchaser doesn’t pay.

During the recent mortgage boom of the last decade, it was common to see lenders reducing down payments to 10, 5 or sometimes 0 percent.

How does a lender endure the additional risk of the low down payment?

The solution is Private Mortgage Insurance or PMI.

PMI protects the lender if a borrower is unable to pay on the loan and the value of the house is less than what the borrower still owes on the loan.

PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes is NOT tax deductible. Different from a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they secure the money, and they receive payment if the borrower defaults.

How can buyers prevent paying PMI?

The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law guarantees that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.

Keen home owners can get off the hook sooner than expected.

It can take several years to arrive at the point where the principal is only 80% of the initial amount of the loan, so it’s necessary to know how your North Carolina home has appreciated in value. After all, any appreciation you’ve acquired over time counts towards abolishing PMI.

So why should you pay it after the balance of your loan has fallen below the 80% threshold?

Your neighborhood may not adhere to national trends and/or your home might have acquired equity before the economy declined. So even when nationwide trends hint at a reduction in home values, you should realize that real estate is local.

An accredited, North Carolina licensed real estate appraiser can help homeowners figure out just when their home’s equity rises above the 20% point, as it’s a hard thing to know.

Market dynamics and neighborhood-specific pricing trends are an appraiser’s primary job!

At ValPros, we’re experts at recognizing value trends in Kernersville, Forsyth County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little anxiety.

The bottom line – an updated appraisal can save you money.

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