Let Carley Appraisals help you decide if you can get rid of your PMIA 20% down payment is typically the standard when purchasing a home. Because the risk for the lender is usually only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and regular value variations on the chance that a purchaser defaults.Lenders were taking down payments dropping to 10, 5 and frequently 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the value of the house is lower than the loan balance. Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. Separate from a piggyback loan where the lender consumes all the costs, PMI is profitable for the lender because they obtain the money, and they receive payment if the borrower defaults.
How can a home owner refrain from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy home owners can get off the hook sooner than expected. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.It can take several years to get to the point where the principal is just 80% of the initial loan amount, so it's crucial to know how your Texas home has appreciated in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home could have secured equity before things simmered down. So even when nationwide trends signify a reduction in home values, you should know most importantly that real estate is local. The difficult thing for most homeowners to determine is just when their home's equity rises above the 20% point. An accredited, 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 Carley Appraisals, we're experts at analyzing value trends in Canyon Lake, Comal County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the homeowner can delight in 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
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