Let De Santis Appraisal Services help you figure out if you can eliminate your PMIA 20% down payment is typically the standard when purchasing a home. Considering the risk for the lender is usually only the remainder between the home value and the sum due on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders reducing down payments to 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the damages, PMI is beneficial for the lender because they collect the money, and they get the money if the borrower is unable to pay.
How can a home buyer avoid bearing the expense of PMI?With the implementation 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 initial loan amount on nearly all loans. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook a little early.
Because it can take several years to arrive at the point where the principal is just 80% of the initial amount borrowed, it's important to know how your Massachusetts home has grown in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home may have gained equity before the economy declined. So even when nationwide trends predict declining home values, you should know most importantly that real estate is local.
A certified, Massachusetts licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At De Santis Appraisal Services, we know when property values have risen or declined. We're experts at identifying value trends in Newton, Middlesex County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
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