REVARI (Real Estate Valuation and Research Inc.) can help you remove your Private Mortgage Insurance

A 20% down payment is typically the standard when buying a house. Considering the liability for the lender is usually only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value changeson the chance that a borrower is unable to pay.

The market was working with down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the house is less than the balance of the loan.

PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. Different from a piggyback loan where the lender takes in all the losses, PMI is advantageous for the lender because they acquire the money, and they get the money if the borrower is unable to pay.

How can a buyer avoid bearing the expense of PMI?

The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cancel 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 a little earlier. The law states that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

Since it can take many years to reach the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things settled down, so even when nationwide trends signify declining 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 rises above the 20% point, as it's a tough thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At REVARI (Real Estate Valuation and Research Inc.), we're masters at determining value trends in Claremont, Sullivan 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 eliminate the PMI with little anxiety. At that time, the homeowner 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