Mortgage PMI Appraisal
It may seem that lenders are all too eager to lend money to anyone with a decent credit rating for a mortgage. This is because mortgages are secured mostly by the property itself, so even if the borrower defaults, the land is there as compensation. The only real risk is the difference between the value of the property and the amount remaining on the loan which factors into foreclosing on the home itself.
It is why lenders tend to stick to 80% of the home’s value which means if the borrower can come up with the remaining 20%, they stand a good chance of making the purchase even if their credit rating is not perfect. However, there are more mortgages being made for down payments of 10% or less which means more risk for the lender, so this is where the mortgage PIM appraisal comes into play.
What is a PMI?
Private Mortgage Insurance (PMI) is supplemental insurance for the lender in case the borrower defaults on the loan. This policy provides protection in case the borrower does default, and the value of the home is lower than the balance of the loan itself.
When the PMI is used, it not only provides protection, but it also means a potential windfall for the lender thanks to the extra money being put into each payment. Given that a typical monthly PMI payment is $50 for a $100,000 home, it means more money in the pocket of the lender. Plus, the PMI is often paid for by the homeowner even after the amount owed is less than 80% of the value of the home. Of course, with many 30-year loans, it can take many years before that level is reached.
Can the PMI Be Dropped?
The answer is yes. The Homeowners Protection Act of 1999 created a requirement by lenders that they inform homeowners when the PMI was no longer needed. This happens when the amount remaining on the loan represents 78% of the value of the original amount of the mortgage. However, you can request that the PMI be dropped once the value reaches 80%.
Keep in mind that the requirement only applies to home loans, which include refinances that closed after July of 1999. You must be current on your loan payments and any buyer who closed a loan before July of 1999 must initiate the process of eliminating the PMI on their own. The lender need not inform them when it reaches the required 78%. Of course, if your home gains in value, that can help you pass the 80% requirement even faster. Considering that modest gains can change the percentages quickly, it pays to find out when the equity of your home surpasses that amount.
Finding out when your home equity rises above the 20% mark means having a proper mortgage PMI appraisal which considers all relevant factors. If you believe that you are close or have surpassed the requirement, then you can have an appraisal performed. The results will be shared with the lender to ensure that you can get rid of the PMI requirement as soon as possible.
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