Let Meade & Associates help you learn if you can cancel your PMIIt's widely known that a 20% down payment is common when buying a house. Because the risk for the lender is often only the difference between the home value and the sum due on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value changes on the chance that a purchaser is unable to pay.
Lenders were working with down payments as low as 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan covers the lender if a borrower is unable to pay on the loan and the value of the house is less than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible. It's favorable for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, as opposed to a piggyback loan where the lender takes in all the deficits.
How can a home buyer avoid paying PMI?The Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart home owners can get off the hook beforehand. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Since it can take many years to reach the point where the principal is only 80% of the original amount borrowed, it's necessary to know how your Kentucky home has grown in value. After all, any appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home may have secured equity before the economy simmered down. So even when nationwide trends signify declining home values, you should realize that real estate is local.
The toughest thing for almost all people to figure out is just when their home's equity rises above the 20% point. An accredited, Kentucky licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Meade & Associates, we know when property values have risen or declined. We're experts at determining value trends in Ft Mitchell, Boone County, and surrounding areas. Faced with information from an appraiser, the mortgage company will most often drop the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: