Let Homefront Appraisals help you figure out if you can cancel your PMIA 20% down payment is typically the standard when buying a house. Considering the liability for the lender is often only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value fluctuations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. A lender is able to endure the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the house is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they secure the money, and they are covered if the borrower doesn't pay, as opposed to a piggyback loan where the lender takes in all the losses.
How home owners can avoid bearing the expense of PMIThe Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Acute home owners can get off the hook sooner than expected. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Since it can take several years to reach the point where the principal is only 80% of the initial amount of the loan, it's essential to know how your Michigan home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have gained equity before things simmered down.
A certified, Michigan licensed real estate appraiser can help homeowners figure out if their equity has exceeed the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At Homefront Appraisals, we're masters at pinpointing value trends in Waterford, Oakland County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often drop the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year