Let Moab Appraisal Inc. help you decide if you can cancel your PMIA 20% down payment is typically the standard when purchasing a home. The lender's liability is generally only the difference between the home value and the balance due on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and regular value variations on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders making deals with down payments of 10, 5, 3 or sometimes 0 percent. How does a lender endure 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 value of the property is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. It's beneficial for the lender because they secure the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender consumes all the deficits.
How can buyers keep from paying PMI?The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook a little earlier. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take several years to arrive at the point where the principal is only 80% of the initial loan amount, so it's necessary to know how your Utah home has grown in value. After all, any appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not conform to national trends and/or your home might have acquired equity before the economy declined. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
The toughest thing for many homeowners to determine is just when their home's equity rises above the 20% point. An accredited, Utah licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Moab Appraisal Inc., we're experts at pinpointing value trends in Moab, Grand County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally do away with the PMI with little anxiety. At which time, the homeowner can enjoy the savings from that point on.
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