Let John Alve, Real Estate Appraisals help you determine if you can eliminate your PMIWhen buying a house, a 20% down payment is usually the standard. The lender's only exposure is typically just the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations in the event a borrower doesn't pay.During the recent mortgage boom of the mid 2000s, it was widespread to see lenders reducing down payments to 10, 5, 3 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. This additional policy guards the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than what is owed on the loan. PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Instead of a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
How can homeowners keep from paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount on most loans. Wise homeowners can get off the hook beforehand. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.It can take several years to arrive at the point where the principal is just 80% of the initial loan amount, so it's essential to know how your Oregon home has appreciated in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends forecast falling home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things simmered down. An accredited, Oregon licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At John Alve, Real Estate Appraisals, we know when property values have risen or declined. We're experts at recognizing value trends in Hillsboro, Washington County, and surrounding areas. When faced with information from an appraiser, the mortgage company will most often do away with 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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