Elizabeth A. Keech can help you remove your Private Mortgage InsuranceIt's typically understood that a 20% down payment is the standard when getting a mortgage. Considering the liability for the lender is often only the remainder between the home value and the sum due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and natural value variations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became customary to see lenders making deals with 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 is unable to pay on the loan and the market price of the house is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. Instead of a piggyback loan where the lender consumes all the damages, PMI is money-making for the lender because they collect the money, and they get paid if the borrower defaults.
How can homeowners prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little early.
Considering it can take many years to arrive at the point where the principal is only 80% of the original amount of the loan, it's crucial to know how your Virginia home has appreciated in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict decreasing home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have secured equity before things simmered down.
The hardest thing for almost all consumers to determine is whether their home equity has exceeded the 20% point. An accredited, Virginia licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Elizabeth A. Keech, we're experts at identifying value trends in Virginia Beach, Virginia Beach City County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: