Michael Shank can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. Because the risk for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and regular value fluctuations in the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders making deals with down payments of 10, 5 or even 0 percent. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the house is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. Unlike a piggyback loan where the lender absorbs all the deficits, PMI is profitable for the lender because they collect the money, and they are covered if the borrower defaults.
How can home owners keep from bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount on nearly all loans. Smart homeowners can get off the hook beforehand. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is just 80% of the original amount borrowed, so it's crucial to know how your Washington home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home might have gained equity before things declined.
The toughest thing for many people to determine is just when their home's equity rises above the 20% point. A certified, Washington licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Michael Shank, we know when property values have risen or declined. We're experts at identifying value trends in Vancouver, Clark County, and surrounding areas. Faced with information from an appraiser, the mortgage company will often drop 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: