Roth Real Estate Appraisal Services can help you remove your Private Mortgage InsuranceIt's largely known that a 20% down payment is common when purchasing a home. The lender's only exposure is usually just the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuations in the event a borrower defaults.During the recent mortgage upturn of the mid 2000s, it was common to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower defaults on the loan and the value of the house is less than what the borrower still owes on the loan. Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, unlike a piggyback loan where the lender takes in all the damages.
How can a home buyer avoid bearing the cost of PMI?The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart homeowners can get off the hook a little early. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent.Considering it can take many years to get to the point where the principal is just 80% of the initial amount of the loan, it's crucial to know how your Illinois home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not conform to national trends and/or your home might have gained equity before the economy declined. So even when nationwide trends hint at a reduction in home values, you should realize that real estate is local. The toughest thing for almost all consumers to figure out is just when their home's equity goes over the 20% point. A certified, Illinois licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Roth Real Estate Appraisal Services, we're masters at pinpointing value trends in Chicago, Cook 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 most often do away with the PMI with little effort. At that time, the homeowner can delight in 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
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