Craig Gehm Appraisals can help you remove your Private Mortgage InsuranceA 20% down payment is usually the standard when getting a mortgage. Considering the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations on the chance that a purchaser defaults.
Banks were working with down payments discounted to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan protects the lender in case a borrower doesn't pay on the loan and the value of the property is lower than what is owed on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and on many occasions isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the costs, PMI is advantageous for the lender because they acquire the money, and they get the money if the borrower is unable to pay.
How homeowners can avoid bearing the cost of PMIThe Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook ahead of time.
It can take many years to reach the point where the principal is only 80% of the initial loan amount, so it's crucial to know how your Pennsylvania home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home may have secured equity before the economy declined. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
The difficult thing for almost all people to determine is just when their home's equity goes over the 20% point. A certified, Pennsylvania licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At Craig Gehm Appraisals, we know when property values have risen or declined. We're masters at identifying value trends in Harmony, Butler County, and surrounding areas. When faced with data from an appraiser, the mortgage company will generally eliminate the PMI with little trouble. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year