Ross Batey and Associates can help you remove your Private Mortgage InsuranceIt's generally understood that a 20% down payment is common when purchasing a home. The lender's only exposure is often just the difference between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changes in the event a borrower is unable to pay.The market was taking down payments dropping to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender endure the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the market price of the house is lower than the balance of the loan. Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they obtain the money, and they receive payment if the borrower defaults.
How can home owners avoid bearing the cost of PMI?As a result of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on most loans. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook ahead of time.Because it can take several years to reach 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, every bit of appreciation you've accomplished over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home may have secured equity before things cooled off. So even when nationwide trends hint at declining home values, you should realize that real estate is local. The difficult thing for most consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Texas licensed real estate appraiser can definitely help. It's an appraiser's job to keep up with the market dynamics of their area. At Ross Batey and Associates, we're experts at determining value trends in Spring, County, and surrounding areas, and we know when property values have risen or declined. When 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 relish 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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