Have equity in your home? Want a lower payment? An appraisal from Ferenchak Appraisal Services of Tucson can help you get rid of your PMI.A 20% down payment is typically accepted when buying a house. The lender's risk is often only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value changes on the chance that a purchaser doesn't pay.
Lenders were taking down payments discounted to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the house is less than what is owed on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. Instead of a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
How can homeowners prevent bearing the expense of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise homeowners can get off the hook sooner than expected. The law states that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take many years to get to the point where the principal is just 80% of the initial loan amount, so it's essential to know how your Arizona home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards dismissing 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 declining home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home may have gained equity before things simmered down.
A certified, Arizona licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a tough thing to know. It's an appraiser's job to know the market dynamics of their area. At Ferenchak Appraisal Services of Tucson, we know when property values have risen or declined. We're experts at identifying value trends in Tucson, Pima County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: