Have equity in your home? Want a lower payment? An appraisal from Richard Frey can help you get rid of your PMI.It's generally known that a 20% down payment is accepted when purchasing a home. The lender's only exposure is often just the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and natural value changes on the chance that a purchaser defaults.
During the recent mortgage upturn of the last decade, it became widespread to see lenders reducing down payments to 10, 5, 3 or often 0 percent. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the value of the house is less than what the borrower still owes 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 payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they secure the money, and they receive payment if the borrower is unable to pay.
How homeowners can keep from bearing the cost of PMIThe Homeowners Protection Act of 1998 forces the lenders on the majority of loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law states that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, wise home owners can get off the hook ahead of time.
It can take many years to reach the point where the principal is just 80% of the original amount of the loan, so it's essential to know how your Florida home has appreciated in value. After all, every bit of appreciation you've acquired over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends indicate lower overall home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home might have secured equity before things simmered down.
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 tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Richard Frey, we're experts at recognizing value trends in Gainesville, Gainesville-Dade 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 drop the PMI with little effort. 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: