Let Gregory James Company, Inc. help you determine if you can get rid of your PMI
It's widely understood that a 20% down payment is accepted when purchasing a home. The lender's liability is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value changes on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower defaults on the loan and the worth of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they obtain the money, and they receive payment if the borrower defaults, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can refrain from paying PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, smart homeowners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends predict plummeting home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have gained equity before things settled down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Gregory James Company, Inc., we're experts at recognizing value trends in Atlanta, Polk County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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