Alpine Appraisals can help you remove your Private Mortgage InsuranceIt's largely inferred that a 20% down payment is accepted when buying a house. Since the liability for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value variations in the event a purchaser doesn't pay.
Lenders were taking down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower is unable to pay on the loan and the value of the house is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they acquire the money, and they are covered if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the deficits.
How can a home owner avoid bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, acute home owners can get off the hook a little earlier.
It can take many years to get to the point where the principal is just 80% of the initial amount borrowed, so it's essential to know how your Wisconsin home has grown in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends indicate declining home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have gained equity before things declined.
The toughest thing for most consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Wisconsin licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Alpine Appraisals, we're masters at recognizing value trends in Solon Springs, Douglas County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year