Evaluating Property in the MidSouth (EPM) can help you remove your Private Mortgage InsuranceIt's largely understood that a 20% down payment is common when purchasing a home. Because the liability for the lender is usually only the difference between the home value and the amount due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it was customary to see lenders reducing down payments to 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the market price of the home is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and on many occasions isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they collect the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the losses.
How can a buyer keep from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart homeowners can get off the hook a little early. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to arrive at the point where the principal is only 80% of the original amount of the loan, so it's essential to know how your Mississippi home has grown in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home might have secured equity before things declined.
An accredited, Mississippi 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 difficult thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Evaluating Property in the MidSouth (EPM), we're experts at determining value trends in Southaven, Shelby County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally do away with the PMI with little trouble. 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: