Let Herrin Appraisal Company help you figure out if you can get rid of your PMI

When purchasing a home, a 20% down payment is usually the standard. Because the liability for the lender is usually only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value variationsin the event a borrower is unable to pay.

Banks were taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the value of the property is less than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible, PMI is pricey to a borrower. It's beneficial for the lender because they acquire the money, and they get the money if the borrower doesn't pay, opposite from a piggyback loan where the lender consumes all the losses.

How can home buyers prevent bearing the cost of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law pledges that, at the request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise home owners can get off the hook ahead of time.

It can take countless years to arrive at the point where the principal is only 20% of the initial loan amount, so it's necessary to know how your home has grown in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home may have gained equity before things cooled off, so even when nationwide trends predict falling home values, you should understand that real estate is local.

An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Herrin Appraisal Company, we know when property values have risen or declined. We're masters at pinpointing value trends in Clemmons, Forsyth County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that time, the home owner 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