Klier Valuations can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is common when purchasing a home. The lender's only exposure is generally just the remainder between the home value and the balance due on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower doesn't pay.During the recent mortgage upturn of the last decade, it was common to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added policy covers the lender in case a borrower is unable to pay on the loan and the market price of the house is less than what the borrower still owes on the loan. PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the losses, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower defaults.
How homeowners can refrain from bearing the cost of PMIThe Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen home owners can get off the hook a little earlier. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent.Since it can take several years to reach the point where the principal is only 80% of the initial loan amount, it's necessary to know how your Texas home has grown in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have acquired equity before things declined. A certified, Texas licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a difficult thing to know. It is an appraiser's job to understand the market dynamics of their area. At Klier Valuations, we know when property values have risen or declined. We're masters at determining value trends in Austin, Travis County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. 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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