Powers Real Estate Services, LLC can help you remove your Private Mortgage Insurance
It's generally understood that a 20% down payment is accepted when purchasing a home. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became widespread 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 answer is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender if a borrower defaults on the loan and the market price of the house is less than what the borrower still owes on the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's profitable for the lender because they collect the money, and they get paid if the borrower doesn't pay, contradictory to a piggyback loan where the lender consumes all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can avoid paying PMI
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate 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 just 80 percent. So, wise homeowners can get off the hook sooner than expected.
It can take many years to reach the point where the principal is only 20% of the initial loan amount, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends signify falling home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have secured equity before things settled down.
The toughest thing for most homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to recognize the market dynamics of our area. At Powers Real Estate Services, LLC, we're masters at determining value trends in San Tan Valley, Pinal County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little effort. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: