Karen Mann & Associates - Appraisal and Expert Witness Services can help you remove your Private Mortgage Insurance

It's largely known that a 20% down payment is common when purchasing a home. Considering the liability for the lender is generally only the remainder between the home value and the amount due on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value variationsin the event a purchaser defaults.

During the recent mortgage boom of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the worth of the home is lower than what the borrower still owes on the loan.

PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender takes in all the damages, PMI is profitable for the lender because they secure the money, and they receive payment if the borrower doesn't pay.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can homebuyers prevent bearing the cost of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook a little early.

It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it's important to know how your home has grown in value. After all, all of the appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things calmed 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 hard thing to know. It's an appraiser's job to recognize the market dynamics of their area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we know when property values have risen or declined. We're masters at identifying value trends in Discovery Bay, Contra Costa County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that 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