A. M. Appraisals can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is usually only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan covers the lender in case a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they obtain the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can keep from paying PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Wise homeowners can get off the hook ahead of time. The law states that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
Considering it can take countless years to reach the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home might have acquired equity before things calmed down, so even when nationwide trends predict falling home values, you should realize that real estate is local.
A certified, 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. It is an appraiser's job to know the market dynamics of their area. At A. M. Appraisals, we're experts at determining value trends in West Columbia, Lexington County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that 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:
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