Let Tanya K. Birren help you figure out if you can eliminate your PMIWhen purchasing a home, a 20% down payment is usually the standard. The lender's liability is often only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes in the event a borrower is unable to pay.During the recent mortgage upturn of the mid 2000s, it was common to see lenders reducing down payments to 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the value of the house is lower than the balance of the loan. Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. It's profitable for the lender because they obtain the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender absorbs all the losses.
How homebuyers can refrain from bearing the cost of PMIThe Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, savvy home owners can get off the hook ahead of time.It can take several years to arrive at the point where the principal is just 80% of the initial amount of the loan, so it's important to know how your Florida home has appreciated in value. After all, any appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends hint at lower overall home values, realize that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have secured equity before things simmered down. The hardest thing for many homeowners 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 Tanya K. Birren, we're experts at analyzing value trends in Port Richey, Pasco 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 often cancel the PMI with little trouble. At which time, the home owner can enjoy 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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