GVI Appraisals, Inc. can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is typically the standard. Considering the risk for the lender is oftentimes only the remainder between the home value and the amount due on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value variations in the event a purchaser doesn't pay.
During the recent mortgage boom that our country recently experienced, it was common to see lenders only asking for down payments of 10, 5 or even 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower is unable to pay on the loan and the value of the home is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they collect the money, and they get the money if the borrower defaults, in contrast to a piggyback loan where the lender takes in all the costs.
How can buyers keep from paying PMI?The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law promises that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent. So, savvy homeowners can get off the hook ahead of time.
It can take a significant number of years to arrive at the point where the principal is only 80% of the original amount borrowed, so it's necessary to know how your Alabama home has increased in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not adhere to national trends and/or your home might have gained equity before the economy simmered down. So even when nationwide trends signify declining home values, you should understand that real estate is local.
A certified, Alabama licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to understand the market dynamics of their area. At GVI Appraisals, Inc., we know when property values have risen or declined. We're experts at recognizing value trends in Tuscaloosa, Tuscaloosa County, and surrounding areas. Faced with data from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: