McCarthy Real Estate, Inc., Appraisal Services can help you remove your Private Mortgage Insurance
It's largely known that a 20% down payment is common when purchasing a home. Considering the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value variationson the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This additional policy takes care of the lender in the event a borrower defaults on the loan and the market price of the property is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they acquire the money, and they get paid if the borrower defaults, opposite from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer keep from bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook ahead of time. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have secured equity before things settled down.
The hardest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At McCarthy Real Estate, Inc., Appraisal Services, we know when property values have risen or declined. We're masters at recognizing value trends in Marietta, Washington County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which 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: