Let Accurity Valuation Eagle Appraisals help you discover if you can get rid of your PMIIt's typically understood that a 20% down payment is common when purchasing a home. Since the liability for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser is unable to pay.
The market was working with down payments as low as 10, 5 and frequently 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. As opposed to a piggyback loan where the lender absorbs all the damages, PMI is profitable for the lender because they obtain the money, and they are covered if the borrower is unable to pay.
How homebuyers can avoid bearing the expense of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on nearly all loans. Savvy home owners can get off the hook beforehand. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take a significant number of years to reach the point where the principal is only 80% of the original amount borrowed, so it's important to know how your Minnesota home has increased in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends indicate decreasing home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home could have secured equity before things simmered down.
The difficult thing for most homeowners to determine is whether their home equity has exceeded the 20% point. A certified, Minnesota licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Accurity Valuation Eagle Appraisals, we're masters at pinpointing value trends in Eagan, Dakota County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year