Let Mary Kay Moloney help you learn if you can eliminate your PMIWhen buying a house, a 20% down payment is typically the standard. The lender's only liability is generally just the difference between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuations in the event a borrower is unable to pay.
During the recent mortgage boom of the last decade, it was common to see lenders making deals with down payments of 10, 5, 3 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 additional policy covers the lender in case a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and on many occasions isn't even tax deductible, PMI can be pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the damages, PMI is money-making for the lender because they secure the money, and they receive payment if the borrower defaults.
How can a homebuyer keep from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on the majority of loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise home owners can get off the hook a little early. The law guarantees that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is only 80% of the initial loan amount, so it's important to know how your Illinois home has increased in value. After all, all of the appreciation you've gained over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends signify decreasing home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have secured equity before things cooled off.
The toughest thing for most people to determine is whether their home equity has exceeded the 20% point. An accredited, Illinois licensed real estate appraiser can surely help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Mary Kay Moloney, we know when property values have risen or declined. We're masters at identifying value trends in Park Forest, Cook County, and surrounding areas. Faced with information from an appraiser, the mortgage company will often remove the PMI with little effort. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: