Alpha Valuations can help you remove your Private Mortgage InsuranceIt's widely known that a 20% down payment is common when buying a house. Because the risk for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variations in the event a borrower doesn't pay.Lenders were working with down payments discounted to 10, 5 and even 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 solution is Private Mortgage Insurance or PMI. PMI protects 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. PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. As opposed to a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they obtain the money, and they get the money if the borrower defaults.
How can buyers avoid bearing the cost of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on most loans. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook sooner than expected.It can take a significant number of years to arrive at the point where the principal is just 80% of the original amount of the loan, so it's important to know how your Illinois home has grown in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood might not follow national trends and/or your home could have acquired equity before things declined. So even when nationwide trends hint at a reduction in home values, you should realize that real estate is local. An accredited, 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 hard thing to know. It's an appraiser's job to understand the market dynamics of their area. At Alpha Valuations, we know when property values have risen or declined. We're experts at pinpointing value trends in Woodridge, Dupage County, and surrounding areas. When faced with information from an appraiser, the mortgage company will most 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: Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year
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