Have equity in your home? Want a lower payment? An appraisal from Race Appraisal Services, LLC can help you get rid of your PMI.

It's widely understood that a 20% down payment is accepted when purchasing a home. Considering the liability for the lender is generally only the difference between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the charges of foreclosure, reselling the home, and natural value fluctuationson the chance that a borrower doesn't pay.

During the recent mortgage upturn of the last decade, it became widespread to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the market price of the property is lower than the loan balance.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is beneficial for the lender because they collect the money, and they receive payment if the borrower is unable to pay.

How home buyers can prevent paying PMI

With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise homeowners can get off the hook a little earlier. The law designates that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.

It can take many years to arrive at the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends hint at decreasing home values, you should understand that real estate is local.

The hardest thing for most 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 is an appraiser's job to recognize the market dynamics of their area. At Race Appraisal Services, LLC, we're masters at recognizing value trends in East Longmeadow, Hampden County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often cancel the PMI with little effort. At which time, the homeowner 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