Let Tradewinds Appraisals, LLC help you decide if you can get rid of your PMIWhen getting a mortgage, a 20% down payment is typically the standard. The lender's only liability is typically just the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and regular value fluctuations in the event a borrower is unable to pay.
Banks were working with down payments as low as 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added policy takes care of the lender in the event a borrower doesn't pay on the loan and the value of the house is less than the loan balance.
Since 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. Different from a piggyback loan where the lender consumes all the damages, PMI is beneficial for the lender because they acquire the money, and they get the money if the borrower doesn't pay.
How home owners can refrain from bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Keen homeowners can get off the hook a little earlier. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Because it can take a significant number of years to reach the point where the principal is just 80% of the original amount of the loan, it's necessary to know how your Texas home has increased in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate lower overall home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have gained equity before things cooled off.
A certified, Texas 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 difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Tradewinds Appraisals, LLC, we know when property values have risen or declined. We're experts at recognizing value trends in Galveston, Galveston County, and surrounding areas. Faced with data from an appraiser, the mortgage company will generally remove the PMI with little anxiety. At that time, the homeowner can retain 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