Daniel J. Smith Appraisals can help you remove your Private Mortgage InsuranceIt's largely inferred that a 20% down payment is the standard when buying a house. The lender's risk is oftentimes only the remainder between the home value and the balance due on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower is unable to pay on the loan and the market price of the property is less than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. Different from a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they collect the money, and they are covered if the borrower doesn't pay.
How can home owners keep from paying PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, keen homeowners can get off the hook a little earlier.
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, so it's essential to know how your Pennsylvania home has grown in value. After all, every bit of appreciation you've obtained 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% threshold? Your neighborhood might not adhere to national trends and/or your home could have secured equity before the economy declined. So even when nationwide trends predict falling home values, you should know most importantly that real estate is local.
A certified, Pennsylvania licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a hard thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Daniel J. Smith Appraisals, we're experts at determining value trends in Upper Saint Clair, Allegheny County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will 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: