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John Cirincione, the National Chief Appraiser of Mortgage Information Systems, answers some of your questions about mortgages.
Q: What is PMI?
Q: Who usually pays for PMI?
Q: Is it possible to get rid of PMI?
Q: When can I get rid of PMI?
Q: How do I figure out if I have 20 percent equity?
Q: What is market value?
Q: Are real estate values defined any other way?
Q: Is market value the same as the listing price?
Q: What is PMI?
A: Private Mortgage Insurance, which protects the lender if the borrower defaults on the loan.
Q: Who usually pays for PMI?
A: The borrower. The premiums typically are included in your monthly mortgage statement.
Q: Is it possible to get rid of PMI?
A: Yes, and you should. PMI for a $100,000 loan can cost up to $75 a month.
Q: When can I get rid of PMI?
A: That depends on the terms of your mortgage; however, in most cases, PMI can be eliminated once you have 20 percent equity in your home.
Q: How do I figure out if I have 20 percent equity?
A: Having 20 percent equity isn't the same as having paid off 20 percent of your mortgage. Equity fluctuates with the value of your home, which generally increases over time, especially if you've made any improvements. If you owe 80 percent or less of what your house is worth (for example, $80,000 on a house worth $100,000) then you have enough equity. The trick is finding out the market value of your house. Most lenders will require a certified appraisal, which will cost you a few hundred dollars. Use Domania's Equity Calculator to estimate if you have enough equity to get rid of PMI.
Q: What is market value?
A: The best guess of how much a typical buyer would pay for a particular property.
Q: Are real estate values defined any other way?
A: Yes, although market value is the term most often used in appraisals for residential properties and loans, such as home equity lines or mortgage refinancing. Some other valuations include:
- Fair market value, which is most commonly used in accounting functions and may or may not be equal to market value.
- Insurance value, which, depending on the policy, might reflect the cost of reproducing or replacing the property, as opposed to what it would sell for now.
- Liquidation value, which assumes how much the property would be worth in a sale made under duress. Assessed value, which is used to determine the taxes to be paid on the property.
- Value in use, which considers how much a property is worth for a particular use or to a specific buyer. For example, a large building with an automotive lift and 440-volt wiring would be worth more to a mechanic than to the average homebuyer.
Q: Is market value the same as the listing price?
A: Not necessarily. The seller might decide to ask for more or less after considering any number of factors, including repair costs, broker's fees, or how much he or she is willing to negotiate. And the actual sale price can be influenced by all sorts of forces, from mortgage rates to the local climate.
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