TWGlass Appraisal can help you remove your Private Mortgage InsuranceA 20% down payment is usually accepted when purchasing a home. The lender's only risk is generally just the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and regular value changes in the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders reducing down payments to 10, 5 or even 0 percent. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan covers the lender if a borrower defaults on the loan and the market price of the house is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they obtain the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender absorbs all the costs.
How can homeowners avoid 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 reaches 78 percent of the original loan amount on nearly all loans. Savvy home owners can get off the hook sooner than expected. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
Since it can take several years to reach the point where the principal is only 80% of the original amount borrowed, it's essential to know how your Texas home has appreciated in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not conform to national trends and/or your home could have gained equity before things cooled off. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
An accredited, Texas licensed real estate appraiser can help homeowners figure out if their equity has made it to the 20% point, as it's a tough thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At TWGlass Appraisal, we know when property values have risen or declined. We're masters at recognizing value trends in Wharton, Jackson County, and surrounding areas. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. 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: