Let Brady Appraisal Services help you learn if you can eliminate your PMIWhen purchasing a home, a 20% down payment was typically the standard. The lender's only risk was usually just the remainder between the home value and the amount due on the loan, so the 20% added a nice cushion against the expenses of foreclosure, selling the home again, and typical value variations on the chance that a borrower defaults.
Banks were working with down payments dropping to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender manage the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the market price of the house is lower than the balance of the loan.
PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible. It's advantageous for the lender because they secure the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender consumes all the losses.
How can a homeowner avoid paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. Savvy homeowners can get off the hook a little earlier. The law states that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Considering it can take many years to reach the point where the principal is only 80% of the original amount borrowed, it's necessary to know how your Maryland home has increased in value. After all, all of the appreciation you've achieved over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends forecast decreasing home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have acquired equity before things cooled off.
The hardest thing for most people to figure out is just when their home's equity goes over the 20% point. A certified, Maryland licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! We know when property values have risen or declined in Frederick County. Faced with credible figures from an appraiser, the mortgage company will often do away with the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
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