ASK Real Estate Services can help you remove your Private Mortgage InsuranceIt's largely understood that a 20% down payment is the standard when purchasing a home. The lender's only liability is typically just the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and regular value variations on the chance that a borrower defaults.
During the recent mortgage upturn of the last decade, it became common to see lenders only asking for down payments of 10, 5, 3 or often 0 percent. How does a lender handle the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower doesn't pay on the loan and the value of the property is less than what is owed on the loan.
PMI is costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. Different from a piggyback loan where the lender takes in all the costs, PMI is favorable for the lender because they secure the money, and they get paid if the borrower is unable to pay.
How can a homeowner prevent bearing the cost of PMI?The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, acute home owners can get off the hook ahead of time.
Considering it can take a significant number of years to reach the point where the principal is just 80% of the original loan amount, it's essential to know how your Illinois home has appreciated in value. After all, every bit of appreciation you've gained over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things cooled off.
A certified, Illinois licensed real estate appraiser can help home owners figure out just when their home's equity rises above the 20% point, as it's a hard thing to know. Market dynamics and neighborhood-specific pricing trends are an appraiser's primary job! At ASK Real Estate Services, we know when property values have risen or declined. We're experts at recognizing value trends in Oak Park, Cook County, and surrounding areas. Faced with figures from an appraiser, the mortgage company will often remove the PMI with little anxiety. At which time, the home owner can enjoy the savings from that point on.
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