Richards & Richards Real Estate, LLC can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. The lender's only exposure is typically just the remainder between the home value and the balance remaining on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser doesn't pay.
The market was taking down payments discounted to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added policy takes care of the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be pricey to a borrower. Separate from a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they obtain the money, and they are covered if the borrower is unable to pay.
How homebuyers can prevent bearing the expense of PMIThe Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook a little early.
Considering it can take a significant number of years to arrive at the point where the principal is only 80% of the initial loan amount, it's crucial to know how your Pennsylvania home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not conform to national trends and/or your home may have acquired equity before things declined. So even when nationwide trends hint at a reduction in home values, you should understand that real estate is local.
The hardest thing for almost all consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Pennsylvania licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At Richards & Richards Real Estate, LLC, we know when property values have risen or declined. We're experts at determining value trends in Franklin, Venango County, and surrounding areas. When faced with information from an appraiser, the mortgage company will often eliminate the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
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