Let Jim Audas, Jr. help you determine if you can get rid of your PMIIt's typically inferred that a 20% down payment is the standard when buying a house. Because the liability for the lender is usually only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and natural value variations on the chance that a borrower doesn't pay.During the recent mortgage boom that our country recently experienced, it was common to see lenders only asking for down payments of 10, 5, 3 or sometimes 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan protects the lender in the event a borrower defaults on the loan and the value of the house is less than what is owed on the loan. Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Different from a piggyback loan where the lender takes in all the damages, PMI is beneficial for the lender because they acquire the money, and they are covered if the borrower defaults.
How homebuyers can prevent paying PMIWith the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on most loans. Smart homeowners can get off the hook beforehand. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.Because it can take several years to get to the point where the principal is only 80% of the initial amount of the loan, it's important to know how your Maryland home has increased in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not follow national trends and/or your home could have acquired equity before the economy cooled off. So even when nationwide trends indicate a reduction in home values, you should understand that real estate is local. An accredited, Maryland licensed real estate appraiser can help home owners figure out if their equity has reached 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 Jim Audas, Jr., we know when property values have risen or declined. We're experts at pinpointing value trends in Bethesda, Montgomery County, and surrounding areas. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the home owner 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
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