Arkansas Real Estate Appraisal Professional Inc. can help you remove your Private Mortgage InsuranceIt's generally known that a 20% down payment is the standard when buying a house. Considering the liability for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.During the recent mortgage boom of the last decade, it was widespread to see lenders only asking for down payments of 10, 5, 3 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the house is lower than the balance of the loan. Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI can be pricey to a borrower. It's profitable for the lender because they secure the money, and they get paid if the borrower defaults, as opposed to a piggyback loan where the lender absorbs all the costs.
How can a home buyer avoid paying PMI?The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law stipulates that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, acute home owners can get off the hook sooner than expected.Because it can take many years to arrive at the point where the principal is just 80% of the original amount borrowed, it's important to know how your Arkansas home has appreciated in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying 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 adhering to the national trends and/or your home could have gained equity before things declined. A certified, Arkansas licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Arkansas Real Estate Appraisal Professional Inc., we're experts at identifying value trends in Malvern, Hot Spring 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 remove the PMI with little trouble. At which time, the home owner can enjoy 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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