Darrel Clark & Associates, Inc. can help you remove your Private Mortgage InsuranceWhen buying a house, a 20% down payment is usually the standard. Considering the liability for the lender is often only the remainder between the home value and the sum due on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value changes on the chance that a borrower defaults.
The market was taking down payments discounted to 10, 5 and frequently 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary policy protects the lender if a borrower defaults on the loan and the value of the house is lower than the loan balance.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they receive payment if the borrower defaults, different from a piggyback loan where the lender takes in all the costs.
How can a homeowner keep from paying PMI?The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Acute homeowners can get off the hook a little earlier. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Considering it can take a significant number of years to reach the point where the principal is just 80% of the original amount of the loan, it's essential to know how your Utah home has grown in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Even when nationwide trends indicate decreasing home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home may have acquired equity before things simmered down.
A certified, Utah licensed real estate appraiser can help home owners figure out if their equity has reached the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Darrel Clark & Associates, Inc., we know when property values have risen or declined. We're masters at recognizing value trends in Mapleton, Utah 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 delight in the savings from that point on.
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