Dawson Appraisal Services can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. The lender's risk is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value changes on the chance that a borrower defaults.
The market was accepting down payments discounted to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan 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 balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they acquire the money, and they are covered if the borrower doesn't pay, different from a piggyback loan where the lender absorbs all the damages.
How homebuyers can avoid bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, acute home owners can get off the hook sooner than expected.
Since it can take several years to get to the point where the principal is just 80% of the initial amount of the loan, it's crucial to know how your Pennsylvania home has grown in value. After all, all of the appreciation you've achieved over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things simmered down.
A certified, Pennsylvania licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Dawson Appraisal Services, we're experts at recognizing value trends in Harrisburg, Dauphin County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little effort. At which time, the home owner can enjoy 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