Let Neu Real Estate help you learn if you can get rid of your PMIA 20% down payment is usually the standard when getting a mortgage. Considering the liability for the lender is often only the difference between the home value and the sum due on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuations in the event a borrower doesn't pay.
Banks were accepting down payments discounted to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the home is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Unlike a piggyback loan where the lender absorbs all the costs, PMI is advantageous for the lender because they acquire the money, and they are covered if the borrower doesn't pay.
How can home owners keep from paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount on nearly all loans. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, smart homeowners can get off the hook a little early.
It can take several years to arrive at the point where the principal is just 80% of the initial amount of the loan, so it's necessary to know how your Minnesota home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate lower overall home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things declined.
The difficult thing for many consumers to determine is just when their home's equity goes over the 20% point. An accredited, Minnesota licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Neu Real Estate, we're masters at pinpointing value trends in Ortonville, Big Stone 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 most often do away with the PMI with little trouble. 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: