Let Tidewater Home Appraisals, Inc. help you determine if you can cancel your PMIIt's widely known that a 20% down payment is the standard when buying a house. The lender's liability is often only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value variations on the chance that a purchaser is unable to pay.During the recent mortgage boom of the mid 2000s, it was common to see lenders only asking for 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. This supplemental policy guards the lender in the event a borrower doesn't pay on the loan and the market price 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 payment and often isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they secure the money, and they get paid if the borrower doesn't pay.
How can home owners keep 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 initial loan amount. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, wise homeowners can get off the hook a little earlier.It can take several years to get to the point where the principal is just 80% of the original loan amount, so it's crucial to know how your Virginia home has grown in value. After all, any appreciation you've gained over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate decreasing home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have gained equity before things declined. The difficult thing for most people to figure out is just when their home's equity rises above the 20% point. An accredited, Virginia certified real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Tidewater Home Appraisals, Inc., we're masters at recognizing value trends in Chesapeake and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often do away with the PMI with little effort. 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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