Singleton & Associates, LLC can help you remove your Private Mortgage InsuranceA 20% down payment is usually the standard when purchasing a home. The lender's risk is usually only the difference between the home value and the balance outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value variations in the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders reducing down payments to 10, 5 or sometimes 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the value of the house is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be costly to a borrower. It's advantageous for the lender because they obtain the money, and they are covered if the borrower doesn't pay, unlike a piggyback loan where the lender consumes all the costs.
How can a home buyer keep from paying PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, savvy home owners can get off the hook a little earlier.
It can take several years to reach the point where the principal is only 80% of the original loan amount, so it's essential to know how your Oklahoma home has appreciated in value. After all, any appreciation you've gained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home could have gained equity before the economy simmered down. So even when nationwide trends indicate falling home values, you should realize that real estate is local.
An accredited, Oklahoma licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Singleton & Associates, LLC, we're masters at recognizing value trends in Oklahoma City, Oklahoma County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: