Let Furr Appraisal Service help you decide if you can get rid of your PMI

When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is oftentimes only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations in the event a borrower is unable to pay.

During the recent mortgage upturn of the last decade, it became customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the worth of the house is lower than what is owed on the loan.

Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI is pricey to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is profitable for the lender because they collect the money, and they get the money 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 homebuyers can avoid bearing the expense of PMI

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Keen homeowners can get off the hook a little earlier. The law pledges that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.

Because it can take countless years to get to the point where the principal is only 20% of the original amount borrowed, it's important to know how your home has grown in value. After all, any appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Even when nationwide trends forecast plummeting home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have acquired equity before things simmered down.

The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Furr Appraisal Service, we're masters at analyzing value trends in Camden, Benton County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often do away with the PMI with little trouble. At that time, the homeowner can relish 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

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