C.D. McCullough Real Estate Appraisal can help you remove your Private Mortgage Insurance

When purchasing a home, a 20% down payment is typically the standard. Considering the liability for the lender is oftentimes only the difference between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and natural value variationsin the event a borrower is unable to pay.

Banks were accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the market price of the home is less than what the borrower still owes on the loan.

PMI can be pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible. Different from a piggyback loan where the lender takes in all the deficits, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower defaults.

How can homebuyers prevent paying PMI?

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook sooner than expected. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.

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

An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At C.D. McCullough Real Estate Appraisal, we're masters at determining value trends in Colton, San Bernardino County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At which time, the home owner 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