Jordan-Appraisal can help you remove your Private Mortgage InsuranceA 20% down payment is usually accepted when purchasing a home. Considering the risk for the lender is often only the remainder between the home value and the amount outstanding on the loan, the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and natural value variations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the last decade, it became customary to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the market price of the house is less than the balance of the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they get the money if the borrower doesn't pay, in contrast to a piggyback loan where the lender absorbs all the losses.
How can a homebuyer avoid bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on most loans. Keen home owners can get off the hook a little earlier. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
Because it can take many years to get to the point where the principal is just 80% of the original amount borrowed, it's crucial to know how your Illinois home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends hint at decreasing home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have secured equity before things simmered down.
The difficult thing for many homeowners to figure out is just when their home's equity goes over the 20% point. A certified, Illinois licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with the market dynamics of their area. At Jordan-Appraisal, we know when property values have risen or declined. We're experts at recognizing value trends in Champaign, Champaign County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that 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: