Tight & Right Real Estate Valuation can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is usually the standard. Since the liability for the lender is usually only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and natural value fluctuationson the chance that a borrower defaults.
During the recent mortgage upturn of the last decade, it was customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan protects the lender in the event a borrower defaults on the loan and the worth of the house is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they obtain the money, and they get the money if the borrower is unable to pay, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers avoid paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart home owners can get off the hook a little early.
Considering it can take countless years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's crucial to know how your home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends hint at falling home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Tight & Right Real Estate Valuation, we know when property values have risen or declined. We're masters at identifying value trends in Princeton, Union County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: