Let Arnold Real Estate Appraisal help you figure out if you can cancel your PMIWhen buying a house, a 20% down payment is typically the standard. Since the liability for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower defaults.Banks were working with down payments dropping to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the market price of the home is less than the balance of the loan. PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Instead of a piggyback loan where the lender consumes all the losses, PMI is favorable for the lender because they secure the money, and they receive payment if the borrower is unable to pay.
How can a homebuyer refrain from paying PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount on most loans. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook a little earlier.Considering it can take a significant number of years to reach the point where the principal is only 80% of the initial loan amount, it's crucial to know how your Texas home has increased in value. After all, any appreciation you've accomplished over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict lower overall home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have gained equity before things simmered down. The toughest thing for almost all people to figure out is whether their home equity has exceeded the 20% point. A certified, Texas licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At Arnold Real Estate Appraisal, we're experts at analyzing value trends in Garland, Dallas 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 drop the PMI with little effort. At that time, the homeowner 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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