Let Maria Hopkins Associates help you discover if you can eliminate your PMI
A 20% down payment is usually the standard when purchasing a home. Because the risk for the lender is often only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value variations on the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the home is less than the loan balance.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's favorable for the lender because they acquire the money, and they get paid if the borrower defaults, different from a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook sooner than expected.
Since it can take countless years to reach the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends forecast plummeting home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have gained equity before things simmered down.
The toughest thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Maria Hopkins Associates, we know when property values have risen or declined. We're masters at recognizing value trends in Spencer, Worcester County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally drop the PMI with little trouble. 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: