Hearthstone Appraisal can help you remove your Private Mortgage InsuranceWhen getting a mortgage, a 20% down payment is usually the standard. The lender's liability is generally only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value changes in the event a purchaser doesn't pay.
During the recent mortgage upturn that our country recently experienced, it was common to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the market price of the house is less 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 absorbs all the damages, PMI is money-making for the lender because they secure the money, and they are covered if the borrower doesn't pay.
How can homeowners avoid bearing the expense of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on most loans. Smart home owners 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.
Considering it can take a significant number of years to arrive at the point where the principal is just 80% of the original amount of the loan, it's necessary to know how your Washington home has increased in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not conform to national trends and/or your home could have gained equity before things declined. So even when nationwide trends predict a reduction in home values, you should understand that real estate is local.
An accredited, Washington licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Hearthstone Appraisal, we're experts at identifying value trends in Spokane County, and surrounding areas, we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little anxiety. 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: