Let Brians Appraisal Service help you discover if you can cancel your PMIWhen purchasing a home, a 20% down payment is typically the standard. The lender's liability is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a purchaser is unable to pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders reducing down payments to 10, 5 or often 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added policy guards the lender in the event a borrower defaults on the loan and the market price of the home is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's advantageous 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 consumes all the losses.
How can a home buyer refrain from paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount on most loans. Wise homeowners can get off the hook ahead of time. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
Since it can take several years to arrive at the point where the principal is only 80% of the original amount of the loan, it's necessary to know how your Ct. home has increased in value. After all, any appreciation you've obtained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home might have gained equity before things declined. So even when nationwide trends predict falling home values, you should understand that real estate is local.
The toughest thing for most consumers to determine is whether their home equity has exceeded the 20% point. An accredited, Ct. licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Brians Appraisal Service, we know when property values have risen or declined. We're masters at identifying value trends in Vernon, Tolland County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
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