SACRAMENTO VALLEY APPRAISAL GRP can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is typically the standard. The lender's only risk is usually just the remainder between the home value and the balance due on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders only asking for down payments of 10, 5 or even 0 percent. A lender is able to handle the added risk of the low down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case 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 on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible. Separate from a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they collect the money, and they get paid if the borrower doesn't pay.
How can a home owner avoid paying PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount on most loans. The law stipulates that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, smart home owners can get off the hook ahead of time.
It can take several years to reach the point where the principal is only 80% of the initial amount of the loan, so it's essential to know how your California home has increased in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not conform to national trends and/or your home might have gained equity before things declined. So even when nationwide trends predict a reduction in home values, you should understand that real estate is local.
A certified, California licensed real estate appraiser can help homeowners figure out just when their home's equity goes over the 20% point, as it's a difficult thing to know. It's an appraiser's job to understand the market dynamics of their area. At SACRAMENTO VALLEY APPRAISAL GRP, we're masters at recognizing value trends in Sacramento, Sacramento County, and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At which time, the homeowner can delight in the savings from that point on.
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