Have equity in your home? Want a lower payment? An appraisal from Garza's Appraisal Solutions can help you get rid of your PMI.When purchasing a home, a 20% down payment is usually the standard. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a borrower defaults.During the recent mortgage boom of the last decade, it became widespread to see lenders only asking for down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan. Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they collect the money, and they get paid if the borrower doesn't pay, in contrast to a piggyback loan where the lender absorbs all the losses.
How homebuyers can prevent paying PMIWith the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on most loans. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.It can take many years to get to the point where the principal is only 80% of the initial loan amount, so it's crucial to know how your Texas home has increased in value. After all, all of the appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends signify lower overall home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have gained equity before things declined. A certified, Texas 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 Garza's Appraisal Solutions, we're experts at determining value trends in Houston, Harris 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 most often cancel the PMI with little trouble. At which time, the homeowner can enjoy 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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