Savery Appraisal Services, Inc. can help you remove your Private Mortgage Insurance

When purchasing a home, a 20% down payment is usually the standard. The lender's liability is usually only the remainder between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and regular value changes in the event a purchaser is unable to pay.

During the recent mortgage upturn of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in case a borrower defaults on the loan and the market price of the property is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Opposite from a piggyback loan where the lender takes in all the deficits, PMI is profitable for the lender because they secure the money, and they get the money if the borrower doesn't pay.

How can buyers keep from bearing the cost of PMI?

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook sooner than expected.

Considering it can take countless years to get to the point where the principal is just 20% of the original amount borrowed, it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be following the national trends and/or your home might have secured equity before things settled down, so even when nationwide trends hint at plummeting home values, you should realize that real estate is local.

The toughest thing for almost all homeowners 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 know the market dynamics of our area. At Savery Appraisal Services, Inc., we're masters at determining value trends in Lindsay, Tulare County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little effort. At that time, the homeowner can delight in 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