Let Midwest Valuation, L.L.C. help you determine if you can cancel your PMIA 20% down payment is typically accepted when purchasing a home. The lender's liability is generally only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and typical value variations in the event a borrower is unable to pay.
Banks were working with down payments discounted to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This added plan protects the lender in case a borrower is unable to pay on the loan and the value of the home is lower than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they acquire the money, and they receive payment if the borrower is unable to pay.
How buyers can keep from bearing the cost of PMIThe Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise home owners can get off the hook sooner than expected.
It can take a significant number of years to arrive at the point where the principal is only 80% of the original amount borrowed, so it's crucial to know how your Minnesota home has increased in value. After all, all of the appreciation you've obtained over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict lower overall home values, realize that real estate is local. Your neighborhood may not be following the national trends and/or your home may have acquired equity before things simmered down.
A certified, Minnesota licensed real estate appraiser can help homeowners figure out if their equity has reached the 20% point, as it's a tough thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Midwest Valuation, L.L.C., we're masters at recognizing value trends in Maple Grove, Hennepin County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
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