William Wood Co. can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. Considering the risk for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a purchaser doesn't pay.
During the recent mortgage upturn that our country recently experienced, it was widespread to see lenders reducing down payments to 10, 5, 3 or even 0 percent. A lender is able to handle the added risk of the minimal down payment with 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 house is lower than the balance of the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible. As opposed to a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they acquire the money, and they get the money if the borrower doesn't pay.
How home owners can refrain from bearing the expense of 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 beginning loan amount on nearly all loans. The law pledges that, upon request of the homeowner, the PMI must be dropped 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 just 80% of the original loan amount, so it's essential to know how your Pennsylvania home has increased in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home could have gained equity before things simmered down. So even when nationwide trends indicate declining home values, you should realize that real estate is local.
The difficult thing for most people to figure out is whether their home equity has exceeded the 20% point. An accredited, Pennsylvania licensed real estate appraiser can definitely help. It's an appraiser's job to keep up with the market dynamics of their area. At William Wood Co., we're masters at identifying value trends in West Chester, Chester 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 most often cancel the PMI with little effort. At which time, the homeowner can delight in 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