Johnson Appraisal Co. can help you remove your Private Mortgage Insurance

It's generally known that a 20% down payment is the standard when getting a mortgage. The lender's liability is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.

During the recent mortgage upturn of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or sometimes 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 home is lower than what the borrower still owes on the loan.

PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is lucrative for the lender because they collect the money, and they get the money if the borrower defaults.

How can a buyer keep from paying PMI?

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Savvy homeowners can get off the hook a little early. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.

Since it can take many years to reach the point where the principal is just 20% of the initial amount of the loan, it's essential to know how your home has increased in value. After all, all of the appreciation you've accomplished over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home could have gained equity before things simmered down.

The difficult thing for most homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to keep up with the market dynamics of their area. At Johnson Appraisal Co., we're experts at analyzing value trends in Tucson, Pima County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. 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