Have equity in your home? Want a lower payment? An appraisal from Herrin Appraisal Company can help you get rid of your PMI.

It's largely inferred that a 20% down payment is the standard when purchasing a home. Since the liability for the lender is often only the remainder between the home value and the amount remaining on the loan, the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value changesin the event a purchaser defaults.

The market was working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender if a borrower defaults on the loan and the market price of the house is lower than what the borrower still owes on the loan.

Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes all the costs.

How can a homebuyer avoid bearing the cost of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law stipulates that, at the request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, smart home owners can get off the hook sooner than expected.

It can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, so it's crucial to know how your home has increased in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends signify decreasing home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have secured equity before things settled down.

The hardest thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At Herrin Appraisal Company, we know when property values have risen or declined. We're masters at recognizing value trends in Clemmons, Forsyth County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually remove the PMI with little trouble. At that time, the home owner can enjoy 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