Chris Peterson can help you remove your Private Mortgage Insurance
A 20% down payment is usually the standard when purchasing a home. Since the liability for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value fluctuationson the chance that a purchaser is unable to pay.
Lenders were working with down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan protects the lender in the event a borrower defaults on the loan and the value of the property is lower than what the borrower still owes on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the costs, PMI is advantageous for the lender because they collect the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers prevent paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook ahead of time.
Because it can take countless years to get to the point where the principal is just 20% of the initial loan amount, it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Despite the fact that nationwide trends hint at declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things cooled off.
The hardest thing for many homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. At Chris Peterson, we know when property values have risen or declined. We're experts at identifying value trends in Fountain Valley, Orange County and surrounding areas. Faced with information from an appraiser, the mortgage company will generally remove the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: