Betty Ann Anderson can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is usually the standard. The lender's only exposure is often just the remainder between the home value and the balance due on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, reselling the home, and typical value changes on the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders reducing down payments to 10, 5 or even 0 percent. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary policy protects the lender if a borrower is unable to pay on the loan and the value of the house is less than what is owed on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the costs, PMI is beneficial for the lender because they obtain the money, and they receive payment if the borrower is unable to pay.
How can a homebuyer prevent paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on nearly all loans. Savvy home owners can get off the hook a little early. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Since it can take several years to get to the point where the principal is only 80% of the initial amount of the loan, it's crucial 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 what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends signify falling home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have gained equity before things declined.
An accredited, Florida licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a difficult thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Betty Ann Anderson, we know when property values have risen or declined. We're experts at analyzing value trends in Clermont, Lake County, and surrounding areas. Faced with information from an appraiser, the mortgage company will generally remove the PMI with little anxiety. At which 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