Have equity in your home? Want a lower payment? An appraisal from Fairway Appraisal Services can help you get rid of your PMI.When getting a mortgage, a 20% down payment is usually the standard. Because the liability for the lender is often only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuations in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan covers the lender in case a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender takes in all the costs.
How can a homebuyer refrain from bearing the cost of PMI?The Homeowners Protection Act of 1998 obligates the lenders on the majority of loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise home owners can get off the hook a little early. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent.
Because it can take many years to reach the point where the principal is only 80% of the original amount of the loan, it's essential to know how your Wisconsin home has increased in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home might have secured equity before the economy cooled off. So even when nationwide trends signify decreasing home values, you should understand that real estate is local.
The difficult thing for almost all consumers to figure out is whether their home equity has exceeded the 20% point. An accredited, Wisconsin licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At Fairway Appraisal Services, we know when property values have risen or declined. We're masters at analyzing value trends in Muskego, Waukesha County, and surrounding areas. When faced with information from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
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