Let JM Real Estate Group, LLC help you figure out if you can eliminate your PMIA 20% down payment is usually accepted when getting a mortgage. Considering the liability for the lender is usually only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower doesn't pay.
During the recent mortgage upturn that our country recently experienced, it became customary to see lenders making deals with down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the house 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 often isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the losses, PMI is beneficial for the lender because they acquire the money, and they get the money if the borrower is unable to pay.
How can a home owner refrain from paying PMI?With the passage 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 initial loan amount on most loans. Keen home owners can get off the hook a little earlier. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take several years to reach the point where the principal is only 80% of the initial loan amount, so it's important to know how your California home has increased in value. After all, any appreciation you've achieved over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home might have gained equity before things declined. So even when nationwide trends hint at a reduction in home values, you should realize that real estate is local.
An accredited, California licensed real estate appraiser can help homeowners figure out if their equity has made it to the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At JM Real Estate Group, LLC, we're masters at pinpointing value trends in San Clemente, Orange 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 usually cancel the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
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