Bedinotti Associates can help you remove your Private Mortgage InsuranceA 20% down payment is typically accepted when purchasing a home. The lender's risk is often only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value changes on the chance that a borrower doesn't pay.
The market was taking down payments dropping to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower defaults on the loan and the value of the house is lower than the loan balance.
Because 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 can be expensive to a borrower. Separate from a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they obtain the money, and they get the money if the borrower defaults.
How can a home owner prevent bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on most loans. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, savvy home owners can get off the hook sooner than expected.
Because it can take many years to reach the point where the principal is only 80% of the original amount of the loan, it's important to know how your New York home has grown in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not conform to national trends and/or your home could have acquired equity before the economy cooled off. So even when nationwide trends signify decreasing home values, you should realize that real estate is local.
The hardest thing for many homeowners to determine is just when their home's equity goes over the 20% point. An accredited, New York licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Bedinotti Associates, we're experts at analyzing value trends in Selkirk, Albany County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: