R.M. Conrad & Associates, Inc. can help you remove your Private Mortgage Insurance
A 20% down payment is typically the standard when getting a mortgage. Considering the risk for the lender is generally only the difference between the home value and the amount due on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and typical value variationsin the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the market price of the home is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender takes in all the losses, PMI is profitable 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 a homebuyer prevent bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook a little earlier.
It can take many years to reach the point where the principal is only 20% of the initial amount borrowed, so it's necessary to know how your home has grown in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things cooled off.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At R.M. Conrad & Associates, Inc., we know when property values have risen or declined. We're experts at identifying value trends in West Chester, Chester County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that 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: