It's largely inferred that a 20% down payment is the standard when purchasing a home. The lender's liability is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser doesn't pay.
Lenders were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower defaults on the loan and the market price of the house is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. Unlike a piggyback loan where the lender consumes all the damages, PMI is money-making for the lender because they secure the money, and they get paid if the borrower doesn't pay.
How can a homebuyer refrain from bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook sooner than expected. The law promises that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is just 20% of the original amount of the loan, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold?
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Edwards Appraisal Group, we're masters at identifying value trends in Spokane , Spokane County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. 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: https://www.consumer.ftc.gov/