Kent Watson Appraisals can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. The lender's liability is often only the difference between the home value and the balance outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations in the event a borrower is unable to pay.
The market was accepting down payments dropping to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the market price of the property is lower than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. Instead of a piggyback loan where the lender takes in all the deficits, PMI is profitable for the lender because they acquire the money, and they receive payment if the borrower defaults.
How can a home buyer keep from paying PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law guarantees that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little early.
It can take several years to arrive at the point where the principal is only 80% of the initial amount of the loan, so it's necessary to know how your Pennsylvania home has appreciated in value. After all, every bit of appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not conform to national trends and/or your home may have gained equity before the economy simmered down. So even when nationwide trends hint at falling home values, you should understand that real estate is local.
A certified, Pennsylvania licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Kent Watson Appraisals, we're experts at identifying value trends in Greensburg, Westmoreland 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 often remove the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: