Have equity in your home? Want a lower payment? An appraisal from Classic Valuations, Inc. can help you get rid of your PMI.It's generally understood that a 20% down payment is common when getting a mortgage. The lender's only risk is typically just the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became widespread to see lenders reducing down payments to 10, 5 or often 0 percent. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower is unable to pay on the loan and the market price of the property is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI is pricey to a borrower. As opposed to a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.
How can a homeowner prevent bearing the cost of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on nearly all loans. Acute home owners can get off the hook sooner than expected. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
Because it can take a significant number of years to get to the point where the principal is just 80% of the initial amount borrowed, it's crucial to know how your Florida home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not conform to national trends and/or your home may have secured equity before things cooled off. So even when nationwide trends hint at decreasing home values, you should know most importantly that real estate is local.
The toughest thing for most homeowners to determine is just when their home's equity goes over the 20% point. An accredited, Florida licensed real estate appraiser can definitely help. It is an appraiser's job to keep up with the market dynamics of their area. At Classic Valuations, Inc., we know when property values have risen or declined. We're experts at pinpointing value trends in Orlando, Orange County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally cancel the PMI with little trouble. 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: