PR Appraisal Services, LLC can help you remove your Private Mortgage InsuranceA 20% down payment is typically the standard when buying a house. Because the liability for the lender is generally only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower doesn't pay.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in the event a borrower is unable to 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 lumped into the mortgage payment and on many occasions isn't even tax deductible. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the damages.
How can homeowners keep from paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on nearly all loans. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart home owners can get off the hook a little early.
Since it can take several years to reach the point where the principal is just 80% of the original amount borrowed, it's essential to know how your Colorado home has increased in value. After all, any appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at decreasing home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things simmered down.
The difficult thing for many homeowners to determine is whether their home equity has exceeded the 20% point. A certified, Colorado licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At PR Appraisal Services, LLC, we know when property values have risen or declined. We're experts at recognizing value trends in Arvada, Jefferson County, and surrounding areas. Faced with information from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which 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: