ALSouth Appraisal Services LLC can help you remove your Private Mortgage InsuranceA 20% down payment is usually the standard when getting a mortgage. Considering the risk for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders reducing down payments to 10, 5 or even 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan guards the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. As opposed to a piggyback loan where the lender takes in all the losses, PMI is advantageous for the lender because they collect the money, and they are covered if the borrower doesn't pay.
How can homeowners keep from paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on nearly all loans. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, smart homeowners can get off the hook ahead of time.
Considering it can take a significant number of years to get to the point where the principal is just 80% of the original amount of the loan, it's necessary to know how your Alabama home has increased in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends indicate decreasing home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things simmered down.
The toughest thing for almost all homeowners to figure out is just when their home's equity goes over the 20% point. An accredited, Alabama licensed real estate appraiser can definitely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At ALSouth Appraisal Services LLC, we're masters at identifying value trends in Chancellor, Geneva County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally eliminate the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: