Price Appraisals & Realty, LLC can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is typically the standard. The lender's risk is oftentimes only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional policy guards the lender in case a borrower defaults on the loan and the value of the home is lower than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. Different from a piggyback loan where the lender takes in all the damages, PMI is money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners keep from paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Acute home owners can get off the hook ahead of time. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Considering it can take many years to arrive at the point where the principal is just 20% of the initial loan amount, it's necessary to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be adopting the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The difficult thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At Price Appraisals & Realty, LLC, we're experts at determining value trends in Lakeway, Travis County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often remove the PMI with little trouble. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: