Let A. M. Appraisals help you decide if you can eliminate your PMI

A 20% down payment is typically accepted when getting a mortgage. The lender's liability 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 regular value fluctuations on the chance that a borrower doesn't pay.

Lenders were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional plan guards the lender in the event a borrower doesn't pay on the loan and the worth of the house is less than the loan balance.

PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get the money if the borrower defaults, contradictory to a piggyback loan where the lender takes in all the costs.

How can a buyer avoid bearing the expense of PMI?

With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy homeowners can get off the hook beforehand. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.

Because it can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, it's important to know how your home has grown in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends predict falling home values, be aware that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things settled down.

The toughest thing for many homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to know the market dynamics of their area. At A. M. Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in West Columbia, Lexington County and surrounding areas. Faced with data from an appraiser, the mortgage company will often drop the PMI with little trouble. At which time, the homeowner can relish 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