Let Allen Appraisal & Consulting, Inc. help you figure out if you can get rid of your PMIWhen buying a house, a 20% down payment is usually the standard. Considering the risk for the lender is often only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and natural value variations on the chance that a borrower is unable to pay.
The market was working with down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they obtain the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender takes in all the damages.
How home buyers can avoid paying PMIThe Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little earlier.
It can take a significant number of years to reach the point where the principal is just 80% of the initial loan amount, so it's important to know how your Washington home has grown in value. After all, all of the 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% threshold? Your neighborhood may not adhere to national trends and/or your home could have secured equity before things simmered down. So even when nationwide trends forecast falling home values, you should understand that real estate is local.
The difficult thing for many consumers to figure out is just when their home's equity rises above the 20% point. An accredited, Washington licensed real estate appraiser can surely help. It is an appraiser's job to recognize the market dynamics of their area. At Allen Appraisal & Consulting, Inc., we're masters at determining value trends in Vancouver, Clark County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
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