Trust Appraisal Group can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. The lender's only liability is often just the remainder between the home value and the balance remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was common to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender endure the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the market price of the home is less than the loan balance.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Separate from a piggyback loan where the lender consumes all the deficits, PMI is beneficial for the lender because they obtain the money, and they get the money if the borrower defaults.
How can home buyers refrain from bearing the cost of PMI?The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, keen homeowners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is just 80% of the initial amount borrowed, so it's crucial to know how your Minnesota home has appreciated in value. After all, every bit of appreciation you've achieved over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not adhere to national trends and/or your home might have secured equity before things cooled off. So even when nationwide trends forecast decreasing home values, you should realize that real estate is local.
The difficult thing for many consumers to determine is whether their home equity has exceeded the 20% point. A certified, Minnesota licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At Trust Appraisal Group , we know when property values have risen or declined. We're experts at pinpointing value trends in Excelsior, Hennepin County, and surrounding areas. Faced with information from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At which 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: