Let Crane Appraisal Service help you discover if you can eliminate your PMI

A 20% down payment is usually the standard when getting a mortgage. The lender's risk is usually only the difference between the home value and the amount remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuations on the chance that a purchaser defaults.

Lenders were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This added policy protects the lender in case a borrower doesn't pay on the loan and the market price of the home is less than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be costly to a borrower. Different from a piggyback loan where the lender consumes all the damages, PMI is money-making for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.

How can a homeowner keep from bearing the cost of PMI?

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook beforehand. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

It can take many years to reach the point where the principal is just 20% of the original amount of the loan, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be following the national trends and/or your home may have gained equity before things calmed down, so even when nationwide trends forecast plunging home values, you should realize that real estate is local.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Crane Appraisal Service, we know when property values have risen or declined. We're experts at pinpointing value trends in Powell, Delaware County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often cancel the PMI with little trouble. At that time, the home owner 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