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

It's generally understood that a 20% down payment is the standard when buying a house. The lender's liability is usually only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and regular value changes in the event a borrower is unable to pay.

During the recent mortgage upturn of the mid 2000s, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional policy guards the lender in case a borrower is unable to pay on the loan and the worth of the home is less than the loan balance.

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

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

How can home buyers prevent bearing the expense of PMI?

The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart homeowners can get off the hook beforehand. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.

Since it can take many years to get to the point where the principal is just 20% of the initial amount borrowed, it's important to know how your home has increased in value. After all, every bit of appreciation you've accomplished over the years counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends signify plummeting home values, you should realize that real estate is local.

An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It is an appraiser's job to understand the market dynamics of their area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we're experts at pinpointing value trends in Discovery Bay, Contra Costa County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At that time, the home owner can retain 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