Have equity in your home? Want a lower payment? An appraisal from Option One Appraisal Services can help you get rid of your PMI.A 20% down payment is usually accepted when purchasing a home. The lender's risk is generally only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and regular value variations on the chance that a borrower is unable to pay.
During the recent mortgage boom that our country recently experienced, it was widespread to see lenders reducing down payments to 10, 5, 3 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 covers the lender in the event a borrower defaults on the loan and the market price of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and on many occasions isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they collect the money, and they get paid if the borrower doesn't pay, as opposed to a piggyback loan where the lender takes in all the losses.
How home buyers can avoid bearing the expense of PMIWith the passage of The Homeowners Protection Act of 1998, lenders are forced to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on nearly all loans. The law guarantees that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, acute homeowners can get off the hook a little earlier.
Considering it can take many years to arrive at the point where the principal is just 80% of the initial loan amount, it's essential to know how your California home has increased in value. After all, every bit of appreciation you've gained over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends predict falling home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have acquired equity before things simmered down.
A certified, California licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Option One Appraisal Services, we know when property values have risen or declined. We're experts at recognizing value trends in Irvine, Orange County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually drop the PMI with little trouble. At which time, the home owner can retain the savings from that point on.
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