Madison Laine Assoc Inc can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is common when purchasing a home. The lender's only exposure is often just the difference between the home value and the balance due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value changes in the event a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders only asking for down payments of 10, 5, 3 or even 0 percent. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental plan protects the lender in case a borrower defaults on the loan and the value of the home is lower than the balance of the loan.
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 can be expensive to a borrower. It's advantageous for the lender because they obtain the money, and they get the money if the borrower doesn't pay, different from a piggyback loan where the lender consumes all the deficits.
How can a home buyer keep from bearing the cost of PMI?As a result of The Homeowners Protection Act of 1998, lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on most loans. Acute home owners can get off the hook ahead of time. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Considering it can take many years to get to the point where the principal is just 80% of the original amount borrowed, it's crucial to know how your Florida home has grown in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not follow national trends and/or your home may have gained equity before things cooled off. So even when nationwide trends forecast declining home values, you should understand that real estate is local.
A certified, Florida 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. It's an appraiser's job to know the market dynamics of their area. At Madison Laine Assoc Inc, we're masters at recognizing value trends in Fort Walton Beach, Okaloosa County, and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little trouble. At which time, the homeowner can delight in the savings from that point on.
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