Have equity in your home? Want a lower payment? An appraisal from Home Guide Realty Services can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. Considering the liability for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser defaults.
Banks were taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional policy covers 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 the borrower still owes on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. As opposed to a piggyback loan where the lender takes in all the losses, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower doesn't pay.
How can home buyers keep from bearing the cost of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise homeowners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is just 80% of the initial amount borrowed, so it's crucial to know how your Indiana home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not conform to national trends and/or your home might have acquired equity before things declined. So even when nationwide trends forecast a reduction in home values, you should know most importantly that real estate is local.
An accredited, Indiana licensed real estate appraiser can help homeowners figure out if their equity has made it to the 20% point, as it's a tough thing to know. It is an appraiser's job to know the market dynamics of their area. At Home Guide Realty Services, we're experts at pinpointing value trends in Indianapolis, Marion County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: