Harper Certified Appraisals, LLC can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders only asking for down payments of 10, 5, 3 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the value of the property is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI can be expensive to a borrower. It's beneficial for the lender because they collect the money, and they receive payment if the borrower doesn't pay, as opposed to a piggyback loan where the lender absorbs all the losses.
How can a homebuyer avoid bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, acute homeowners can get off the hook a little earlier.
It can take many years to get to the point where the principal is just 80% of the initial amount borrowed, so it's essential to know how your Washington home has grown in value. After all, any appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not adhere to national trends and/or your home could have secured equity before the economy simmered down. So even when nationwide trends indicate decreasing home values, you should know most importantly that real estate is local.
The toughest thing for many homeowners to figure out is whether their home equity has exceeded the 20% point. A certified, Washington licensed real estate appraiser can definitely help. It is an appraiser's job to understand the market dynamics of their area. At Harper Certified Appraisals, LLC, we're masters at identifying value trends in Spokane, Thurston 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 generally drop the PMI with little trouble. At that 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