M.C. Appraisals, Inc. can help you remove your Private Mortgage InsuranceIt's widely known that a 20% down payment is the standard when purchasing a home. The lender's only exposure is usually just the remainder between the home value and the amount due on the loan, so the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it was common to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the market price of the house is lower than what is owed on the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. Instead of a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they collect the money, and they receive payment if the borrower doesn't pay.
How can homebuyers avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart homeowners can get off the hook a little early.
Because it can take several years to get to the point where the principal is only 80% of the initial amount borrowed, it's important to know how your Maryland home has grown in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends hint at falling home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things simmered down.
The toughest thing for most homeowners to figure out is whether their home equity has exceeded the 20% point. An accredited, Maryland licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At M.C. Appraisals, Inc., we're masters at recognizing value trends in Huntingtown, Calvert County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At which time, the home owner can delight in 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