Linn Appraisals can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is typically the standard. The lender's only exposure is usually just the remainder between the home value and the balance remaining on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and natural value changes on the chance that a purchaser is unable to pay.
Lenders were taking down payments discounted to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added policy covers the lender if a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender consumes all the costs, PMI is beneficial for the lender because they acquire the money, and they get the money if the borrower defaults.
How can a homeowner prevent bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook beforehand. The law states that, upon request of the home owner, the PMI must be dropped 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 initial 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 achieved over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends hint at falling home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have gained equity before things cooled off.
A certified, Texas licensed real estate appraiser can help homeowners figure out if their equity has reached the 20% point, as it's a tough thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Linn Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in The Woodlands, Montgomery County, and surrounding areas. When faced with data from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At which time, the homeowner 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