Gottfried Appraisals can help you remove your Private Mortgage InsuranceA 20% down payment is typically the standard when purchasing a home. Considering the risk for the lender is usually only the remainder between the home value and the amount due on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value changes in the event a borrower doesn't pay.
The market was working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the home is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they obtain the money, and they receive payment if the borrower doesn't pay, different from a piggyback loan where the lender absorbs all the costs.
How can home buyers avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy home owners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take a significant number of years to reach the point where the principal is just 80% of the initial amount borrowed, so it's necessary to know how your Pennsylvania home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends forecast decreasing home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have gained equity before things cooled off.
The toughest thing for many homeowners to determine is just when their home's equity goes over the 20% point. An accredited, Pennsylvania licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At Gottfried Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Wynnewood, Montgomery County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little effort. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: