Nolan Real Estate & Appraisal, LLC can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is typically the standard. Because the liability for the lender is generally only the remainder between the home value and the amount remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a borrower doesn't pay.
Lenders were working with down payments discounted to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the value of the property is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Unlike a piggyback loan where the lender absorbs all the costs, PMI is favorable for the lender because they acquire the money, and they get the money if the borrower defaults.
How home buyers can prevent paying PMIWith the passage of The Homeowners Protection Act of 1998, lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on nearly all loans. Wise home owners can get off the hook sooner than expected. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
It can take a significant number of years to arrive at the point where the principal is only 80% of the initial amount of the loan, so it's essential to know how your Indiana home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not conform to national trends and/or your home could have gained equity before the economy simmered down. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
The hardest thing for most people to determine is whether their home equity has exceeded the 20% point. An accredited, Indiana licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Nolan Real Estate & Appraisal, LLC, we know when property values have risen or declined. We're experts at analyzing value trends in Hamilton, Steuben County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that 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: