Some home buyers got an unpleasant surprise if they put down less than 20%. It comes when the lender informs the buyer that they need to buy mortgage insurance. Also known as private mortgage insurance (PMI), it adds expense to those likely stretched a little thin as they scramble to pay for the new house, other incidentals related to the purchase, and the expense of moving. Typically, a PMI is added to the monthly mortgage payment cost, but there are different options on how to pay it. Why do we need it? PMI protects the lender if the homeowner defaults on their home loan. However, it allows the buyer to get into a home they might not otherwise afford.
How to get rid of it
The homeowner can get rid of it as soon as they reach the threshold of 20% equity (go here to calculate) in the home’s original appraised value. At that point, the homeowner can request the lender to cancel the requirement.
There are also strategies for getting rid of this financial obligation sooner. These include:
- Getting a new appraisal: It costs about $300 to $500. The new appraisal can perhaps more accurately determine if the homeowner achieved the 20% equity threshold if the property has increased in value.
- Pay down the loan faster: Adding an extra $100 per month will eat away at the principal more quickly.
- Make upgrades: Build an addition, remodel the kitchen or bathrooms, or increase the property’s value. Then ask the lender to recalculate the loan-to-value ratio. Suddenly, the amount of the mortgage is not such a large chunk of the property’s value.
Real estate attorneys can help
Homeowners will certainly need to work with the mortgage lender. Still, a knowledgeable real estate attorney working here in Florida can help the client determine the best course of action in financing or refinancing a mortgage. This information is based on the specifics of the client’s loan and the property as well as the attorney’s knowledge of real estate community here in Naples.