Brent Turney Inc. can help you remove your Private Mortgage InsuranceIt's largely understood that a 20% down payment is common when buying a house. Since the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders reducing down payments to 10, 5 or even 0 percent. How does a lender manage the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the house 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 on many occasions isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.
How can a buyer prevent paying PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook a little early.
It can take a significant number of years to get to the point where the principal is just 80% of the initial amount borrowed, so it's crucial to know how your Oklahoma home has grown in value. After all, all of the appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood may not conform to national trends and/or your home may have acquired equity before the economy simmered down. So even when nationwide trends hint at a reduction in home values, you should know most importantly that real estate is local.
The difficult thing for most homeowners to figure out is whether their home equity has exceeded the 20% point. An accredited, Oklahoma licensed real estate appraiser can definitely help. It's an appraiser's job to keep up with the market dynamics of their area. At Brent Turney Inc., we're experts at determining value trends in Tulsa, Tulsa County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: