Let 121Valuation help you figure out if you can eliminate your PMIWhen buying a house, a 20% down payment is usually the standard. The lender's liability is generally only the difference between the home value and the balance outstanding on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, reselling the home, and natural value variations in the event a purchaser is unable to pay.During the recent mortgage upturn of the last decade, it became widespread to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan. Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Different from a piggyback loan where the lender takes in all the damages, PMI is advantageous for the lender because they secure the money, and they receive payment if the borrower doesn't pay.
How can a homeowner prevent bearing the expense of PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on most loans. Savvy homeowners can get off the hook sooner than expected. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.It can take many years to arrive at the point where the principal is only 80% of the original amount of the loan, so it's crucial to know how your Texas home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not conform to national trends and/or your home may have acquired equity before things simmered down. So even when nationwide trends signify falling home values, you should realize that real estate is local. A certified, Texas licensed real estate appraiser can help homeowners figure out 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 keep up with the market dynamics of our area. At 121Valuation, we're masters at determining value trends in Grapevine, Tarrant 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 most often remove the PMI with little effort. At which time, the homeowner can enjoy 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
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