Let Beta a la mode help you learn if you can eliminate your PMIA 20% down payment is usually accepted when buying a house. Because the liability for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value variations in the event a borrower defaults.During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders reducing down payments to 10, 5, 3 or often 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than the loan balance. PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. It's advantageous for the lender because they secure the money, and they get paid if the borrower defaults, separate from a piggyback loan where the lender consumes all the costs.
How can buyers avoid bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on nearly all loans. Savvy homeowners can get off the hook a little early. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.It can take many years to get to the point where the principal is only 80% of the original loan amount, so it's important to know how your Oklahoma home has appreciated in value. After all, all of the appreciation you've obtained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have gained equity before things simmered down. The hardest thing for most people to determine is just when their home's equity goes over the 20% point. A certified, Oklahoma licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Beta a la mode, we're experts at recognizing value trends in Oklahoma City, Oklahoma County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often remove the PMI with little trouble. At which 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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