Let Bailey Valuation and Consulting help you learn if you can eliminate your PMIIt's typically inferred that a 20% down payment is the standard when purchasing a home. The lender's risk is often only the difference between the home value and the amount due on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations in the event a borrower defaults.
During the recent mortgage boom that our country recently experienced, it became widespread to see lenders making deals with down payments of 10, 5, 3 or even 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower defaults on the loan and the value of the house is lower than the balance of the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender takes in all the deficits.
How home owners can prevent paying PMIThe Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook ahead of time.
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 crucial to know how your Arizona home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify declining home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things simmered down.
An accredited, Arizona licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At Bailey Valuation and Consulting, we're masters at recognizing value trends in Tempe, Maricopa County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
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