Cornerstone Valuations can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is the standard when getting a mortgage. The lender's risk is generally only the difference between the home value and the amount due on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and regular value fluctuations on the chance that a purchaser is unable to pay.During the recent mortgage upturn of the mid 2000s, it became customary to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the market price of the home is lower than what is owed on the loan. PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and on many occasions isn't even tax deductible. It's lucrative for the lender because they secure the money, and they get paid if the borrower defaults, in contrast to a piggyback loan where the lender consumes all the costs.
How can homebuyers prevent bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on most loans. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook a little earlier.It can take several years to get to the point where the principal is only 80% of the initial amount borrowed, so it's necessary to know how your Florida home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not conform to national trends and/or your home could have secured equity before things declined. So even when nationwide trends indicate decreasing home values, you should understand that real estate is local. A certified, Florida licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Cornerstone Valuations, we're masters at pinpointing value trends in Edgewater, Volusia County, and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually do away with 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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