Let Academy Appraisal, Inc. help you decide if you can cancel your PMIA 20% down payment is typically accepted when buying a house. The lender's only risk is generally just the difference between the home value and the sum due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser is unable to pay.The market was accepting down payments dropping to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This added policy protects the lender in case a borrower defaults on the loan and the market price of the house is lower than the loan balance. Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender takes in all the losses, PMI is profitable for the lender because they obtain the money, and they get the money if the borrower defaults.
How can a homeowner avoid paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are obligated 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 states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook sooner than expected.Because it can take a significant number of years to reach the point where the principal is only 80% of the initial amount of the loan, it's essential to know how your Pennsylvania home has grown in value. After all, any appreciation you've achieved 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? Your neighborhood might not follow national trends and/or your home might have gained equity before things simmered down. So even when nationwide trends forecast decreasing home values, you should know most importantly that real estate is local. An accredited, Pennsylvania licensed real estate appraiser can help home owners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Academy Appraisal, Inc. , we're experts at identifying value trends in Warminster, Bucks County, and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often remove the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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