Property Services - Otter Tail Appraisals can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is accepted when getting a mortgage. The lender's liability is often only the difference between the home value and the balance due on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value variations in the event a purchaser is unable to pay.
During the recent mortgage upturn that our country recently experienced, it became common to see lenders only asking for down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the market price of the property is lower than the loan balance.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. It's favorable for the lender because they obtain the money, and they are covered if the borrower defaults, separate from a piggyback loan where the lender consumes all the deficits.
How can a buyer avoid 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 primary loan amount on nearly all loans. Acute home owners can get off the hook beforehand. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take a significant number of years to get to the point where the principal is only 80% of the initial amount of the loan, so it's crucial to know how your Minnesota home has grown in value. After all, all of the appreciation you've obtained over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home might have gained equity before things cooled off.
An accredited, Minnesota licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a difficult thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Property Services, we're experts at determining value trends in Battle Lake, Otter Tail County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often drop the PMI with little effort. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: