Let Crandall Appraisal Service help you decide if you can get rid of your PMIIt's generally understood that a 20% down payment is the standard when getting a mortgage. Because the risk for the lender is generally only the remainder between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and typical value variations in the event a borrower is unable to pay.
Banks were working with down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan protects the lender in case a borrower is unable to pay on the loan and the market price of the property is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is profitable for the lender because they collect the money, and they get the money if the borrower is unable to pay.
How homebuyers can prevent bearing the expense of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. Smart homeowners can get off the hook a little early. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take a significant number of years to arrive at the point where the principal is only 80% of the initial amount of the loan, it's essential to know how your Texas home has grown in value. After all, all of the appreciation you've gained over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home could have secured equity before things cooled off. So even when nationwide trends forecast decreasing home values, you should understand that real estate is local.
An accredited, Texas licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a tough thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Crandall Appraisal Service, we're experts at identifying value trends in Groves, Jefferson County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. At that 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: