The August Group Inc. can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is typically the standard. Because the risk for the lender is generally only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value variationsin the event a borrower defaults.
The market was taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the market price of the property is lower than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender consumes all the costs, PMI is favorable for the lender because they collect the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can keep from bearing the cost of PMI
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Savvy homeowners can get off the hook a little earlier. The law designates that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify plummeting home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have acquired equity before things settled down.
The hardest thing for many home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At The August Group Inc., we're masters at pinpointing value trends in St Louis, Saint Louis 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 usually drop the PMI with little anxiety. At that 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:
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