Residential Valuation can help you remove your Private Mortgage InsuranceIt's typically understood that a 20% down payment is accepted when getting a mortgage. The lender's liability is often only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.During the recent mortgage boom that our country recently experienced, it became widespread to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the market price of the property is less than the balance of the loan. Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they obtain the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the costs.
How can a homebuyer avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Smart homeowners can get off the hook a little earlier. The law promises that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.It can take many years to get to the point where the principal is just 80% of the initial amount borrowed, so it's crucial to know how your Washington home has appreciated in value. After all, every bit of appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at lower overall home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have gained equity before things simmered down. The toughest thing for most consumers to determine is whether their home equity has exceeded the 20% point. A certified, Washington licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At Residential Valuation, we're experts at identifying value trends in Vancouver, Clark County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little effort. At that 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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