Let Central States Appraisal Company help you determine if you can eliminate your PMI
A 20% down payment is usually accepted when getting a mortgage. Considering the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuationsin the event a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the worth of the house is less than what is owed on 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 is costly to a borrower. It's beneficial for the lender because they secure the money, and they get paid if the borrower defaults, different from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook a little earlier. The law designates that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Considering it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify falling home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have secured equity before things settled down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Central States Appraisal Company, we're experts at recognizing value trends in Aurora, Kane County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually remove the PMI with little effort. At that 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: