Have equity in your home? Want a lower payment? An appraisal from Frontline Appraisals, LLC can help you get rid of your PMI.A 20% down payment is typically the standard when buying a house. Since the liability for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and typical value changes in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders only asking for down payments of 10, 5 or often 0 percent. How does a lender manage the additional 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 value of the home is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI is pricey to a borrower. As opposed to a piggyback loan where the lender absorbs all the damages, PMI is advantageous for the lender because they collect the money, and they get paid if the borrower doesn't pay.
How can a home owner avoid paying PMI?The Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, smart home owners can get off the hook ahead of time.
Because it can take several years to arrive at the point where the principal is just 80% of the initial amount of the loan, it's important to know how your Illinois or Indiana home has appreciated in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home could have secured equity before the economy declined. So even when nationwide trends signify falling home values, you should understand that real estate is local.
The difficult thing for almost all homeowners to figure out is just when their home's equity rises above the 20% point. An accredited, Illinois and Indiana certified real estate appraiser can certainly help. It's an appraiser's job to know the market dynamics of their area. At Frontline Appraisals, LLC, we're experts at pinpointing value trends and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually drop the PMI with little trouble. At which time, the home owner can relish 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