Blue Heron Appraisal Services can help you remove your Private Mortgage InsuranceIt's generally understood that a 20% down payment is accepted when purchasing a home. The lender's only risk is generally just the remainder between the home value and the balance remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower is unable to pay.The market was taking down payments dropping to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the market price of the home is less than what the borrower still owes on the loan. PMI is costly 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. As opposed to a piggyback loan where the lender consumes all the losses, PMI is advantageous for the lender because they acquire the money, and they receive payment if the borrower is unable to pay.
How home buyers can keep from bearing the cost of PMIThe Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, wise homeowners can get off the hook ahead of time.It can take several years to get to the point where the principal is just 80% of the initial loan amount, so it's essential to know how your North Carolina home has grown in value. After all, every bit of appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things declined. A certified, North Carolina licensed real estate appraiser can help home owners figure out just when their home's equity goes over the 20% point, as it's a hard thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Blue Heron Appraisal Services, we're experts at pinpointing value trends in The Outer Banks and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually cancel the PMI with little anxiety. At that time, the homeowner can delight in 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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