Let Associated Appraisal Group, Inc. help you figure out if you can get rid of your PMI

It's widely inferred that a 20% down payment is common when purchasing a home. Since the liability for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and regular value variationsin the event a purchaser defaults.

During the recent mortgage upturn of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the market price of the home is less than what is owed on the loan.

PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender consumes all the damages, PMI is lucrative for the lender because they secure the money, and they receive payment if the borrower is unable to pay.

How can a buyer avoid paying PMI?

The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Acute homeowners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.

It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've obtained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends hint at plunging home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things settled down.

The difficult thing for almost all home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Associated Appraisal Group, Inc., we know when property values have risen or declined. We're experts at identifying value trends in Palm Harbor, Pinellas County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally remove the PMI with little trouble. At which time, the homeowner can retain the savings from that point on.

Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year