Let Grace Realty help you learn if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy guards the lender if a borrower is unable to pay on the loan and the worth of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they collect the money, and they get the money if the borrower defaults, contradictory to a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer avoid bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart home owners can get off the hook sooner than expected. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take countless years to reach the point where the principal is just 20% of the original loan amount, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home might have acquired equity before things cooled off.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It's an appraiser's job to understand the market dynamics of their area. At Grace Realty, we know when property values have risen or declined. We're experts at recognizing value trends in Bethlehem, Northampton County and surrounding areas. Faced with information from an appraiser, the mortgage company will often remove the PMI with little trouble. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: