GED Appraisal can help you remove your Private Mortgage InsuranceIt's widely inferred that a 20% down payment is the standard when getting a mortgage. Because the liability for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.
Lenders were taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. Different from a piggyback loan where the lender takes in all the damages, PMI is profitable for the lender because they acquire the money, and they get the money if the borrower is unable to pay.
How can homebuyers prevent bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law states that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, wise homeowners can get off the hook a little earlier.
Considering it can take many years to arrive at the point where the principal is just 80% of the initial loan amount, it's essential to know how your Michigan home has increased in value. After all, any appreciation you've obtained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not adhere to national trends and/or your home may have gained equity before things cooled off. So even when nationwide trends hint at declining home values, you should understand that real estate is local.
The toughest thing for almost all people to figure out is whether their home equity has exceeded the 20% point. An accredited, Michigan licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At GED Appraisal, we're experts at identifying value trends in Prudenville, Roscommon County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often remove the PMI with little effort. At which 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: