Have equity in your home? Want a lower payment? An appraisal from Paradise Appraisals can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. The lender's only liability is generally just the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value variations on the chance that a purchaser defaults.
The market was taking down payments discounted to 10, 5 and frequently 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the additional risk of the minimal down payment with Private Mortgage Insurance or PMI. This additional plan guards the lender if a borrower doesn't pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the costs, PMI is favorable for the lender because they acquire the money, and they get paid if the borrower defaults.
How can home buyers avoid bearing the expense of PMI?With the passage of The Homeowners Protection Act of 1998, lenders are required to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on nearly all loans. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy home owners can get off the hook a little earlier.
Because it can take several years to get to the point where the principal is just 80% of the initial amount of the loan, it's important to know how your Florida home has increased in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home may have gained equity before things cooled off. So even when nationwide trends hint at declining home values, you should realize that real estate is local.
The hardest thing for many consumers to determine is whether their home equity has exceeded the 20% point. A certified, Florida licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Paradise Appraisals, we're masters at determining value trends in Naples, Collier County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often cancel the PMI with little effort. At which time, the homeowner can retain 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