Clark Appraisal Services can help you remove your Private Mortgage InsuranceIt's widely understood that a 20% down payment is common when buying a house. Since the liability for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders only asking for down payments of 10, 5, 3 or even 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the market price of the house is less than the balance of the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and on many occasions isn't even tax deductible. It's beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay, in contrast to a piggyback loan where the lender absorbs all the costs.
How home owners can refrain from bearing the cost of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. Wise home owners can get off the hook sooner than expected. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is just 80% of the original loan amount, so it's crucial to know how your Texas home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home might have secured equity before the economy declined. So even when nationwide trends hint at a reduction in home values, you should understand that real estate is local.
The toughest thing for many consumers to determine is just when their home's equity rises above the 20% point. A certified, Texas licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Clark Appraisal Services, we're masters at analyzing value trends in Alvord, Wise County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the homeowner 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