Lutz Appraisals can help you remove your Private Mortgage InsuranceWhen purchasing a home, a 20% down payment is usually the standard. Because the liability for the lender is oftentimes only the remainder between the home value and the sum outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a borrower is unable to pay.During the recent mortgage upturn that our country recently experienced, it was common to see lenders reducing down payments to 10, 5 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 protects the lender in case a borrower is unable to pay on the loan and the value of the home is lower than what is owed on the loan. PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they collect the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender consumes all the deficits.
How can homeowners keep from bearing the expense of PMI?The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Smart home owners can get off the hook beforehand. The law guarantees that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.Because it can take a significant number of years to get to the point where the principal is only 80% of the original amount borrowed, it's crucial to know how your Colorado home has grown in value. After all, every bit of appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not adhere to national trends and/or your home may have acquired equity before the economy simmered down. So even when nationwide trends forecast falling home values, you should understand that real estate is local. A certified, Colorado licensed real estate appraiser can help homeowners figure out just when their home's equity rises above the 20% point, as it's a tough thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Lutz Appraisals, we know when property values have risen or declined. We're experts at analyzing value trends in Greeley, Weld County, and surrounding areas. When faced with figures from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At which time, the homeowner can delight in 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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