Let Ebb and Flow Appraisals help you decide if you can eliminate your PMIWhen purchasing a home, a 20% down payment is usually the standard. The lender's only exposure is typically just the remainder between the home value and the balance outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations in the event a borrower is unable to pay.Lenders were taking down payments dropping to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is lower than the loan balance. PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the damages, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
How can a home buyer refrain from paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are required to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount on nearly all loans. Savvy home owners can get off the hook beforehand. The law designates that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.It can take many years to get to the point where the principal is just 80% of the initial amount borrowed, so it's necessary to know how your South Carolina home has grown 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? Even when nationwide trends forecast declining home values, realize that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have acquired equity before things simmered down. The toughest thing for many consumers to determine is just when their home's equity rises above the 20% point. An accredited, South Carolina licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At Ebb and Flow Appraisals, we're experts at pinpointing value trends in Charleston, Charleston County, and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often eliminate the PMI with little effort. At that time, the homeowner can retain 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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