Let Sierra Appraisal Services (928) 771-1291 help you determine if you can eliminate your PMIIt's generally inferred that a 20% down payment is accepted when purchasing a home. Because the risk for the lender is generally only the difference between the home value and the amount due on the loan, the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower defaults.Lenders were taking down payments discounted to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added plan guards the lender in the event a borrower defaults on the loan and the value of the property is less than the loan balance. PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. It's advantageous for the lender because they collect the money, and they are covered if the borrower doesn't pay, separate from a piggyback loan where the lender takes in all the costs.
How can a homeowner keep from paying PMI?The Homeowners Protection Act of 1998 requires 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. Wise homeowners can get off the hook beforehand. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.It can take several years to get to the point where the principal is only 80% of the initial amount of the loan, so it's essential to know how your Arizona home has grown in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not conform to national trends and/or your home may have acquired equity before things declined. So even when nationwide trends predict falling home values, you should understand that real estate is local. The difficult thing for almost all people to figure out is just when their home's equity goes over the 20% point. An accredited, Arizona licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Sierra Appraisal Services (928) 771-1291, we're masters at pinpointing value trends in Prescott, Yavapai County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At which time, the home owner 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
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