Elite Appraisal can help you remove your Private Mortgage InsuranceIt's largely known that a 20% down payment is the standard when buying a house. The lender's liability is usually only the difference between the home value and the sum due on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and natural value changes in the event a borrower defaults.
During the recent mortgage upturn of the last decade, it was customary to see lenders reducing down payments to 10, 5 or even 0 percent. A lender is able to manage the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn't pay on the loan and the value of the home is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and on many occasions isn't even tax deductible, PMI can be costly to a borrower. Instead of a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they secure the money, and they get the money if the borrower defaults.
How home buyers can refrain from bearing the expense of PMIWith 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 initial loan amount on nearly all loans. Savvy home owners can get off the hook sooner than expected. The law states that, at the request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Because it can take a significant number of years to get to the point where the principal is just 80% of the original amount borrowed, it's essential to know how your Illinois home has increased in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not follow national trends and/or your home may have secured equity before the economy cooled off. So even when nationwide trends indicate a reduction in home values, you should know most importantly that real estate is local.
The hardest thing for almost all homeowners to know is just when their home's equity goes over if their home equity has exceeded the 20% point. A certified, Illinois licensed real estate appraiser can certainly help. It is an appraiser's job to understand the market dynamics of their area. At Elite Appraisal, we're masters at determining value trends in Chicago, Dupage County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which time, the home owner can enjoy the savings from that point on.
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