The August Group Inc. can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and typical value changes in the event a purchaser defaults.
During the recent mortgage upturn of the last decade, it was widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower defaults on the loan and the worth of the property is lower than what the borrower still owes on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. Different from a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they obtain the money, and they get the money if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy homeowners can get off the hook a little earlier. The law guarantees that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is just 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends indicate falling home values, you should understand that real estate is local.
The hardest thing for many homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At The August Group Inc., we're experts at determining value trends in St Louis, Saint Louis 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 generally drop the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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