Farmer Appraisals can help you remove your Private Mortgage InsuranceIt's largely known that a 20% down payment is accepted when purchasing a home. The lender's risk is generally only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a purchaser defaults.
During the recent mortgage upturn that our country recently experienced, it was common to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower defaults on the loan and the market price of the home is less than the balance of the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the deficits, PMI is favorable for the lender because they secure the money, and they receive payment if the borrower doesn't pay.
How can home owners avoid paying PMI?The Homeowners Protection Act of 1998 makes 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 promises 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 a significant number of years to get to the point where the principal is only 80% of the initial loan amount, it's crucial to know how your Texas home has increased in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict lower overall home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home could have acquired equity before things simmered down.
An accredited, Texas licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Farmer Appraisals, we know when property values have risen or declined. We're experts at determining value trends in Midland, Midland County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. At which 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