M & B Appraisals, LLC can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. Considering the risk for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser is unable to pay.
The market was taking down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower defaults on the loan and the value of the home is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they secure the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender takes in all the deficits.
How can home owners avoid paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, smart home owners can get off the hook a little early.
Because it can take a significant number of years to get to the point where the principal is only 80% of the initial loan amount, it's essential to know how your Missouri home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends indicate lower overall home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have secured equity before things cooled off.
The hardest thing for most homeowners to figure out is whether their home equity has exceeded the 20% point. A certified, Missouri licensed real estate appraiser can definitely help. It's an appraiser's job to know the market dynamics of their area. At M & B Appraisals, LLC, we know when property values have risen or declined. We're masters at determining value trends in Columbia, Boone County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often cancel the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: