Abba Appraisal can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is common when buying a house. Since the risk for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value variations in the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it was common to see lenders making deals with down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender if a borrower defaults on the loan and the value of the house is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they secure the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the deficits.
How can buyers keep from paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on nearly all loans. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, acute home owners can get off the hook a little earlier.
Since it can take a significant number of years to arrive at the point where the principal is just 80% of the initial amount of the loan, it's crucial to know how your California home has increased in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not conform to national trends and/or your home could have gained equity before the economy cooled off. So even when nationwide trends indicate falling home values, you should know most importantly that real estate is local.
The difficult thing for most homeowners to figure out is whether their home equity has exceeded the 20% point. An accredited, California licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At Abba Appraisal, we know when property values have risen or declined. We're experts at identifying value trends in San Jose, Santa Clara County, and surrounding areas. Faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
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