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Andel Appraisals can help you remove your Private Mortgage InsuranceIt's generally understood that a 20% down payment is accepted when getting a mortgage. Considering the liability for the lender is usually only the difference between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value variations on the chance that a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders reducing down payments to 10, 5, 3 or sometimes 0 percent. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible. It's money-making for the lender because they collect the money, and they get paid if the borrower doesn't pay, in contrast to a piggyback loan where the lender takes in all the deficits.
How homebuyers can prevent paying PMIThe Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law pledges that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook ahead of time.
Since it can take many years to reach the point where the principal is just 80% of the initial amount borrowed, it's essential to know how your Illinois home has grown in value. After all, all of the appreciation you've gained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home may have gained equity before the economy simmered down. So even when nationwide trends indicate decreasing home values, you should realize that real estate is local.
The toughest thing for many homeowners to figure out is just when their home's equity rises above the 20% point. A certified, Illinois licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Andel Appraisals, we know when property values have risen or declined. We're experts at analyzing value trends in Arlington Heights, Cook County, and surrounding areas. When faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which 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:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year