Let Sutherland Appraisal Services, Inc. help you discover if you can cancel your PMI
A 20% down payment is typically accepted when buying a house. The lender's risk is generally only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower is unable to pay.
Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they acquire the money, and they get paid if the borrower defaults, unlike a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can keep from paying PMI
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Acute home owners can get off the hook a little earlier. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Considering it can take many years to reach the point where the principal is only 20% of the original loan amount, it's crucial to know how your home has increased in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends hint at plunging home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home may have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Sutherland Appraisal Services, Inc., we know when property values have risen or declined. We're masters at recognizing value trends in Naperville, Dupage County and surrounding areas. Faced with data from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: