Verschelden Appraisals can help you remove your Private Mortgage Insurance
A 20% down payment is usually accepted when purchasing a home. The lender's liability is generally only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a purchaser is unable to pay.
The market was working with down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the value of the house is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, acute homeowners can get off the hook a little early.
Because it can take countless years to reach the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at declining home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things settled down.
The difficult thing for most home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Verschelden Appraisals, we're experts at analyzing value trends in Modesto, Stanislaus 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 do away with the PMI with little anxiety. At that 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: