Let us help you learn if you can eliminate your PMIA 20% down payment is typically the standard when getting a mortgage. Because the risk for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and natural value variations in the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders reducing down payments to 10, 5, 3 or often 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan covers the lender if a borrower is unable to pay on the loan and the market price of the home is less than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and on many occasions isn't even tax deductible. As opposed to a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they obtain the money, and they get the money if the borrower is unable to pay.
How can a home buyer avoid paying PMI?As a result of The Homeowners Protection Act of 1998, lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount on nearly all loans. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook a little earlier.
It can take many years to get to the point where the principal is just 80% of the initial amount of the loan, so it's necessary to know how your South Carolina home has appreciated in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not follow national trends and/or your home might have gained equity before things simmered down. So even when nationwide trends predict declining home values, you should know most importantly that real estate is local.
The difficult thing for many people to determine is whether their home equity has exceeded the 20% point. An accredited, South Carolina licensed real estate appraiser can certainly help. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At Shepard Appraisal Group, LLC, we know when property values have risen or declined. We're experts at determining value trends in Beaufort, Beaufort County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Would you like to save money by not having to pay for Private Mortgage Insurance? We can help. Simply fill out the form below as completely as possible and we'll send you information on how to save PMI expenses, with no obligation to you. We guarantee your privacy.