Herrin Appraisal Company can help you remove your Private Mortgage Insurance

When purchasing a home, a 20% down payment is typically the standard. The lender's liability is generally only the remainder between the home value and the amount due on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and natural value changes in the event a borrower doesn't pay.

The market was accepting down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the value of the property is less than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they obtain the money, and they get paid if the borrower doesn't pay, separate from a piggyback loan where the lender takes in all the deficits.

How home owners can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Smart home owners can get off the hook a little earlier. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.

Considering it can take countless years to arrive at the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Even when nationwide trends indicate declining home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home might have secured equity before things simmered down.

An accredited, 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 Herrin Appraisal Company, we know when property values have risen or declined. We're experts at pinpointing value trends in Clemmons, Forsyth County and surrounding areas. Faced with figures from an appraiser, the mortgage company will usually 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