Let ValPro Appraisal LLC help you figure out if you can eliminate your PMIIt's largely known that a 20% down payment is accepted when purchasing a home. Considering the risk 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 charges of foreclosure, reselling the home, and typical value changes on the chance that a purchaser defaults.
During the recent mortgage boom of the last decade, it was customary to see lenders only asking for down payments of 10, 5, 3 or even 0 percent. How does a lender manage the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the value of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they collect the money, and they get paid if the borrower doesn't pay, as opposed to a piggyback loan where the lender absorbs all the costs.
How can a homeowner keep from 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. Acute homeowners can get off the hook beforehand. The law designates that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent.
Considering 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 essential to know how your Florida home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not adhere to national trends and/or your home may have secured equity before the economy cooled off. So even when nationwide trends indicate a reduction in home values, you should understand that real estate is local.
An accredited, Florida licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a hard thing to know. It is an appraiser's job to understand the market dynamics of their area. At ValPro Appraisal LLC, we're experts at analyzing value trends in Cape Coral, Lee County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: