Let Harlin Young & Co. help you determine if you can cancel your PMIA 20% down payment is usually the standard when purchasing a home. Because the risk for the lender is generally only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value changes in the event a borrower is unable to pay.
During the recent mortgage upturn that our country recently experienced, it was widespread to see lenders reducing down payments to 10, 5 or even 0 percent. A lender is able to manage the additional risk of the low down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the home is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible, PMI can be pricey to a borrower. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is beneficial for the lender because they secure the money, and they get paid if the borrower is unable to pay.
How can homebuyers prevent bearing the expense of PMI?With the implementation of The Homeowners Protection Act of 1998, lenders are forced to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount on nearly all loans. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook a little early.
It can take many years to get to the point where the principal is only 80% of the original amount of the loan, so it's important to know how your Hawaii home has grown in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify lower overall home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home could have secured equity before things simmered down.
A certified, Hawaii licensed real estate appraiser can help home owners figure out if their equity has made it to the 20% point, as it's a tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Harlin Young & Co., we know when property values have risen or declined. We're experts at determining value trends in Honolulu, Honolulu County, and surrounding areas. When faced with data from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
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