F. Lee Appraisal Services can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. The lender's only risk is typically just the remainder between the home value and the amount remaining on the loan, so the 20% supplies a nice cushion against the charges of foreclosure, reselling the home, and typical value changes in the event a borrower defaults.During the recent mortgage boom of the last decade, it became widespread to see lenders making deals with down payments of 10, 5, 3 or even 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 if a borrower doesn't pay on the loan and the market price of the property is lower than the balance of the loan. Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. It's money-making for the lender because they acquire the money, and they get the money if the borrower is unable to pay, unlike a piggyback loan where the lender consumes all the costs.
How can a homeowner prevent bearing the expense of PMI?The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart home owners can get off the hook a little early.It can take a significant number of years to reach the point where the principal is only 80% of the original amount of the loan, so it's important to know how your California home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not conform to national trends and/or your home might have acquired equity before things cooled off. So even when nationwide trends predict declining home values, you should know most importantly that real estate is local. An accredited, California licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At F. Lee Appraisal Services, we're masters at determining value trends in Pasadena, Los Angeles County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often remove the PMI with little effort. At that time, the home owner can enjoy 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
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