Let Maria Shelton help you determine if you can get rid of your PMIA 20% down payment is typically the standard when getting a mortgage. The lender's liability is usually only the difference between the home value and the balance remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and typical value changes on the chance that a borrower is unable to pay.The market was accepting down payments discounted to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the market price of the property is less than the balance of the loan. Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. Instead of a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they obtain the money, and they receive payment if the borrower defaults.
How can homeowners prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, savvy home owners can get off the hook a little early.It can take several years to arrive at the point where the principal is only 80% of the original loan amount, so it's crucial to know how your New Jersey home has grown in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at lower overall home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things simmered down. The toughest thing for most homeowners to determine is just when their home's equity goes over the 20% point. A certified, New Jersey licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Maria Shelton, we know when property values have risen or declined. We're experts at analyzing value trends in Egg Harbor Township, Atlantic County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that time, the homeowner can enjoy 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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