Let Joe Johnson Appraisals help you discover if you can get rid of your PMIIt's generally understood that a 20% down payment is the standard when getting a mortgage. The lender's only exposure is typically just the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value variations on the chance that a borrower doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became customary to see lenders making deals with down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplemental plan protects the lender if a borrower defaults on the loan and the value of the home is lower than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they collect the money, and they are covered if the borrower doesn't pay.
How can a home buyer refrain from paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute home owners can get off the hook a little earlier.
Since it can take several years to arrive at the point where the principal is only 80% of the initial amount of the loan, it's necessary to know how your Kentucky home has grown in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate falling home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have gained equity before things simmered down.
The toughest thing for almost all homeowners to figure out is just when their home's equity goes over the 20% point. A certified, Kentucky licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Joe Johnson Appraisals, we know when property values have risen or declined. We're experts at determining value trends in Frankfort, Franklin County, and surrounding areas. Faced with information from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At which time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: