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

It's generally known that a 20% down payment is accepted when purchasing a home. Considering the liability for the lender is oftentimes only the difference between the home value and the sum due on the loan, the 20% provides a nice cushion against the charges of foreclosure, reselling the home, and natural value changeson the chance that a borrower defaults.

During the recent mortgage upturn of the last decade, it became common to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the low down payment with Private Mortgage Insurance or PMI. This supplemental policy covers the lender in case a borrower doesn't pay on the loan and the worth of the home is lower than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. Unlike a piggyback loan where the lender absorbs all the costs, PMI is profitable for the lender because they secure the money, and they receive payment if the borrower defaults.


How can buyers keep from bearing the cost of PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law states that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook sooner than expected.

It can take many years to reach the point where the principal is just 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood may not be following the national trends and/or your home could have acquired equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should understand that real estate is local.

The difficult thing for most 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 is an appraiser's job to know the market dynamics of their area. At Allen Appraisal Service, we know when property values have risen or declined. We're experts at recognizing value trends in St. George, Washington County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally remove the PMI with little trouble. At that time, the home owner can delight in the savings from that point on.


Paying PMI?
