Let Freedom Appraisals help you learn if you can eliminate your PMIA 20% down payment is typically the standard when purchasing a home. Considering the liability for the lender is often only the difference between the home value and the amount due on the loan, the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value variations in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders making deals with down payments of 10, 5 or often 0 percent. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary policy covers the lender in case a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the costs, PMI is money-making for the lender because they acquire the money, and they are covered if the borrower doesn't pay.
How can a homeowner prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.
It can take a significant number of years to get to the point where the principal is only 80% of the original loan amount, so it's necessary to know how your Ohio home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not adhere to national trends and/or your home could have gained equity before things simmered down. So even when nationwide trends hint at falling home values, you should realize that real estate is local.
A certified, Ohio licensed real estate appraiser can help home owners figure out just when their home's equity goes over 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 Freedom Appraisals, we're masters at identifying value trends in Lancaster, Fairfield County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year