Let Allen Appraisal Service help you determine if you can cancel your PMI

When purchasing a home, a 20% down payment is typically the standard. The lender's risk is usually only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value changes in the event a purchaser defaults.

During the recent mortgage upturn of the last decade, it became customary to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan guards the lender if a borrower is unable to pay on the loan and the value of the house is less than what is owed on the loan.

PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. Contradictory to a piggyback loan where the lender consumes all the damages, PMI is advantageous for the lender because they collect the money, and they get the money if the borrower doesn't pay.

How can home buyers keep from bearing the expense of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook a little earlier. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

It can take countless years to reach the point where the principal is only 20% of the original amount of the loan, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.

The difficult thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It's an appraiser's job to know the market dynamics of their area. At Allen Appraisal Service, we're experts at analyzing value trends in Washington, Washington County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. 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