NHB Appraisal Services, LLC can help you remove your Private Mortgage InsuranceIt's widely understood that a 20% down payment is common when buying a house. Because the risk for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value variations on the chance that a purchaser is unable to pay.
The market was taking down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the market price of the property is less than the loan balance.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and on many occasions isn't even tax deductible. Different from a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they obtain the money, and they are covered if the borrower defaults.
How home owners can refrain from bearing the cost of PMIThe Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy home owners can get off the hook a little early. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.
It can take a significant number of years to arrive at the point where the principal is just 80% of the original amount of the loan, so it's important to know how your Kentucky home has grown in value. After all, any appreciation you've obtained over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things simmered down.
A certified, Kentucky licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a hard thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At NHB Appraisal Services, LLC, we know when property values have risen or declined. We're experts at recognizing value trends in Louisville, Jefferson County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally remove the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
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