Let Abbott & Dartt Appraisal Svc help you figure out if you can get rid of your PMIIt's generally understood that a 20% down payment is accepted when purchasing a home. Since the liability for the lender is often only the remainder between the home value and the amount remaining on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variations in the event a borrower doesn't pay.
Banks were accepting down payments discounted to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the added risk of the small down payment with Private Mortgage Insurance or PMI. This added policy guards the lender if a borrower doesn't pay on the loan and the value of the home is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be pricey to a borrower. Instead of a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they obtain the money, and they are covered if the borrower defaults.
How can a home owner prevent paying PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart homeowners can get off the hook a little earlier.
It can take a significant number of years to get to the point where the principal is just 80% of the initial amount borrowed, so it's essential to know how your Vermont home has grown in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends indicate falling home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have acquired equity before things declined.
The difficult thing for many homeowners to determine is just when their home's equity rises above the 20% point. A certified, Vermont licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Abbott & Dartt Appraisal Svc, we're masters at identifying value trends in Essex Junction, Chittenden 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 often eliminate the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
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