Anew Real Estate Appraisal can help you remove your Private Mortgage InsuranceA 20% down payment is usually the standard when purchasing a home. Because the liability for the lender is usually only the difference between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and natural value changes on the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was common to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary policy guards the lender in the event a borrower is unable to pay 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 rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they acquire the money, and they are covered if the borrower defaults.
How homebuyers can avoid bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, keen home owners can get off the hook a little earlier.
It can take several years to reach the point where the principal is only 80% of the initial amount of the loan, so it's necessary to know how your Texas home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not conform to national trends and/or your home could have acquired equity before the economy simmered down. So even when nationwide trends signify a reduction in home values, you should realize that real estate is local.
The toughest thing for many consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Texas licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Anew Real Estate Appraisal, we're experts at pinpointing value trends in Garland, Dallas County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At that 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year