Illinois Expert Appraisal can help you remove your Private Mortgage InsuranceA 20% down payment is usually the standard when purchasing a home. The lender's liability is oftentimes only the difference between the home value and the amount outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser defaults.
During the recent mortgage boom that our country recently experienced, it was customary to see lenders only asking for down payments of 10, 5, 3 or sometimes 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the value of the property is lower than what is owed on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender absorbs all the damages.
How can home buyers prevent paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on nearly all loans. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook ahead of time.
Because it can take several years to reach the point where the principal is only 80% of the initial amount of the loan, it's necessary to know how your Illinois home has increased in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends forecast declining home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have acquired equity before things simmered down.
A certified, Illinois licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a difficult thing to know. It is an appraiser's job to know the market dynamics of their area. At Illinois Expert Appraisal, we're experts at determining value trends in Chicago, Cook 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 eliminate the PMI with little trouble. 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year