First Advantage Appraisal Service can help you remove your Private Mortgage InsuranceIt's generally understood that a 20% down payment is the standard when getting a mortgage. The lender's only liability is generally just the remainder between the home value and the balance remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value changes on the chance that a purchaser doesn't pay.
Banks were accepting down payments as low as 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Separate from a piggyback loan where the lender takes in all the damages, PMI is profitable for the lender because they secure the money, and they get the money if the borrower defaults.
How can buyers avoid bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise home owners can get off the hook ahead of time. The law states that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Since it can take several years to arrive at the point where the principal is just 80% of the initial amount borrowed, it's crucial to know how your Maryland home has appreciated in value. After all, every bit of appreciation you've obtained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not adhere to national trends and/or your home could have secured equity before things cooled off. So even when nationwide trends hint at declining home values, you should know most importantly that real estate is local.
The hardest thing for most people to determine is whether their home equity has exceeded the 20% point. A certified, Maryland licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At First Advantage Appraisal Service, we're experts at recognizing value trends in Millersville, Anne Arundel County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually cancel the PMI with little effort. At that 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: