Let Elite Appraisal Services help you determine if you can eliminate your PMIA 20% down payment is usually the standard when purchasing a home. Considering the risk for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value changes in the event a borrower is unable to pay.
Banks were working with down payments as low as 10, 5 and frequently 0 percent during the mortgage boom of the last decade. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the value of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI is costly to a borrower. It's money-making for the lender because they obtain the money, and they get paid if the borrower is unable to pay, in contrast to a piggyback loan where the lender absorbs all the costs.
How can buyers prevent paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on nearly all loans. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take many years to arrive at the point where the principal is only 80% of the original amount borrowed, it's essential to know how your Texas home has increased in value. After all, any appreciation you've accomplished over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home might have secured equity before things simmered down. So even when nationwide trends predict declining home values, you should know most importantly that real estate is local.
An accredited, Texas licensed real estate appraiser can help home owners figure out just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Elite Appraisal Services, we're masters at identifying value trends in Pearland, Brazoria County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally remove the PMI with little effort. At that time, the home owner can retain 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