Let Matthew Midkiff help you figure out if you can eliminate your PMIWhen purchasing a home, a 20% down payment is typically the standard. Since the liability for the lender is often 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, selling the home again, and natural value variations on the chance that a borrower defaults.
The market was taking down payments discounted to 10, 5 and frequently 0 percent during the mortgage boom of the last decade. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplemental plan covers the lender if a borrower doesn't pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender takes in all the losses, PMI is advantageous for the lender because they secure the money, and they get the money if the borrower defaults.
How can home buyers avoid bearing the expense of PMI?The Homeowners Protection Act of 1998 makes the lenders on the majority of loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent. So, smart home owners can get off the hook a little earlier.
It can take a significant number of years to reach the point where the principal is just 80% of the initial loan amount, so it's crucial to know how your South Carolina home has appreciated in value. After all, every bit of appreciation you've achieved over the years counts towards removing PMI. So why should you 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 could have acquired equity before things simmered down. So even when nationwide trends hint at a reduction in home values, you should understand that real estate is local.
The difficult thing for many consumers to determine is just when their home's equity goes over the 20% point. A certified, South Carolina licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Matthew Midkiff, we're masters at recognizing value trends in Mt Pleasant, Charleston County, and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the home owner can delight in the savings from that point on.
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