Appraisal Quest can help you remove your Private Mortgage InsuranceA 20% down payment is typically the standard when purchasing a home. Considering the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and regular value variations in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became common to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional plan takes care of the lender in case a borrower defaults on the loan and the market price of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender consumes all the losses.
How can home buyers refrain from paying PMI?The Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Acute homeowners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take a significant number of years to reach the point where the principal is only 80% of the original amount of the loan, so it's important to know how your Pennsylvania home has appreciated in value. After all, every bit of appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends hint at falling home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have acquired equity before things cooled off.
A certified, Pennsylvania licensed real estate appraiser can help homeowners figure out if their equity has exceeed the 20% point, as it's a difficult thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Appraisal Quest, we know when property values have risen or declined. We're masters at recognizing value trends in Blue Bell, Montgomery County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that time, the home owner can relish 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