Royalty Appraisals Inc. can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is usually the standard. The lender's liability is often only the difference between the home value and the balance due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value changes in the event a borrower defaults.
The market was accepting down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower is unable to pay on the loan and the value of the property is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and on many occasions isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the damages, PMI is money-making for the lender because they acquire the money, and they are covered if the borrower doesn't pay.
How can homeowners keep from bearing the cost of PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook sooner than expected.
Considering it can take several years to get to the point where the principal is only 80% of the original amount of the loan, it's necessary to know how your Kentucky home has appreciated in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home might have secured equity before things declined. So even when nationwide trends signify a reduction in home values, you should know most importantly that real estate is local.
The toughest thing for most homeowners to determine is just when their home's equity rises above the 20% point. A certified, Kentucky licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At Royalty Appraisals Inc., we know when property values have risen or declined. We're experts at pinpointing value trends in Springfield, Washington County, and surrounding areas. When faced with information from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. At which time, the homeowner can enjoy the savings from that point on.
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