Don C. Box and Associates can help you remove your Private Mortgage InsuranceIt's generally inferred that a 20% down payment is accepted when purchasing a home. Since the risk for the lender is usually only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and regular value changes in the event a purchaser defaults.The market was accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan covers the lender if a borrower defaults on the loan and the market price of the property is lower than the loan balance. 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 costly to a borrower. Unlike a piggyback loan where the lender takes in all the deficits, PMI is money-making for the lender because they acquire the money, and they are covered if the borrower defaults.
How can home owners prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, savvy home owners can get off the hook ahead of time.It can take a significant number of years to reach the point where the principal is only 80% of the original loan amount, so it's necessary to know how your Texas home has increased in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home might have acquired equity before the economy cooled off. So even when nationwide trends forecast decreasing home values, you should know most importantly that real estate is local. The difficult thing for almost all homeowners to determine is whether their home equity has exceeded the 20% point. A certified, Texas licensed real estate appraiser can certainly help. It's an appraiser's job to recognize the market dynamics of their area. At Don C. Box and Associates, we know when property values have risen or declined. We're experts at pinpointing value trends in Pflugerville, Travis County, and surrounding areas. Faced with data from an appraiser, the mortgage company will often remove the PMI with little anxiety. 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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