Brett E. Patron & Associates LLC can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is the standard when buying a house. Since the liability for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan covers the lender in the event a borrower is unable to pay on the loan and the value of the property is lower than what is owed on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they get paid if the borrower is unable to pay, as opposed to a piggyback loan where the lender absorbs all the losses.
How can a buyer keep from bearing the cost of PMI?As a result of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on nearly all loans. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook sooner than expected.
Considering it can take many years to get to the point where the principal is just 80% of the initial loan amount, it's important to know how your Louisiana home has grown in value. After all, any appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Even when nationwide trends hint at falling home values, understand that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have gained equity before things cooled off.
The toughest thing for many homeowners to figure out is whether their home equity has exceeded the 20% point. A certified, Louisiana licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At Brett E. Patron & Associates LLC, we know when property values have risen or declined. We're masters at identifying value trends in Metairie, Jefferson County, and surrounding areas. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
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