Bax Appraisal Services, LLC can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. Because the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value changes on the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the value of the property is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI is pricey to a borrower. Instead of a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they acquire the money, and they get the money if the borrower defaults.
How can homebuyers refrain from paying PMI?The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Acute home owners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
Since it can take several years to reach the point where the principal is only 80% of the initial amount of the loan, it's necessary to know how your Missouri home has appreciated in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home could have secured equity before the economy simmered down. So even when nationwide trends hint at falling home values, you should know most importantly that real estate is local.
The hardest thing for many consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Missouri licensed real estate appraiser can definitely help. It is an appraiser's job to keep up with the market dynamics of their area. At Appraisal Services, Inc., we're experts at determining value trends in Lake Ozark, Camden 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 trouble. At which time, the home owner 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