Jeanette Ford Appraisal Service can help you remove your Private Mortgage InsuranceIt's largely understood that a 20% down payment is the standard when getting a mortgage. Since the risk for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower is unable to pay.
The market was taking down payments dropping to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they collect 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 buyers can avoid paying PMIWith the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount on most loans. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart homeowners can get off the hook a little earlier.
It can take many years to get to the point where the principal is only 80% of the initial amount borrowed, so it's necessary to know how your North Carolina home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends signify lower overall home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home might have secured equity before things declined.
The difficult thing for almost all consumers to determine is just when their home's equity rises above the 20% point. An accredited, North Carolina licensed real estate appraiser can definitely help. It's an appraiser's job to understand the market dynamics of their area. At Jeanette Ford Appraisal Service, we know when property values have risen or declined. We're experts at determining value trends in Garner, Johnston County, and surrounding areas. Faced with information from an appraiser, the mortgage company will often do away with the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: