Stanley & Company can help you remove your Private Mortgage InsuranceA 20% down payment is typically accepted when buying a house. The lender's only liability is generally just the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower is unable to pay.
The market was taking down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower defaults on the loan and the market price of the property is less than the loan balance.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. It's profitable for the lender because they acquire the money, and they get paid if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the costs.
How can a buyer prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount on most loans. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take several years to get to the point where the principal is just 80% of the initial amount of the loan, so it's important to know how your Texas home has grown in value. After all, every bit of appreciation you've achieved over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home may have acquired equity before things simmered down. So even when nationwide trends signify decreasing home values, you should realize that real estate is local.
The difficult thing for many people to determine is just when their home's equity rises above the 20% point. A certified, Texas licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Stanley & Company, we're experts at pinpointing value trends in Katy, Harris County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At that 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: