Have equity in your home? Want a lower payment? An appraisal from Appraisal Associates can help you get rid of your PMI.It's generally understood that a 20% down payment is common when buying a house. Considering the liability for the lender is usually 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 typical value changes in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was common to see lenders making deals with down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the value of the house is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they collect the money, and they get paid if the borrower doesn't pay.
How can home owners refrain from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Savvy home owners can get off the hook beforehand. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take several years to reach the point where the principal is just 80% of the initial amount of the loan, so it's crucial to know how your New York home has appreciated in value. After all, any appreciation you've gained over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home might have gained equity before the economy cooled off. So even when nationwide trends signify a reduction in home values, you should realize that real estate is local.
The hardest thing for most people to figure out is whether their home equity has exceeded the 20% point. A certified, New York licensed real estate appraiser can certainly help. It's an appraiser's job to know the market dynamics of their area. At Appraisal Associates, we know when property values have risen or declined. We're masters at determining value trends in Fairport, Monroe County, and surrounding areas. Faced with data from an appraiser, the mortgage company will most often remove the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
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