Have equity in your home? Want a lower payment? An appraisal from Allen Appraisal Service can help you get rid of your PMI.

It's typically understood that a 20% down payment is the standard when purchasing a home. Considering the risk for the lender is generally only the difference between the home value and the amount remaining on the loan, the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value variationsin the event a borrower doesn't pay.

Banks were working with 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 small down payment with Private Mortgage Insurance or PMI. This supplemental plan covers the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than the balance of the loan.

PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the costs, PMI is advantageous for the lender because they secure the money, and they receive payment if the borrower is unable to pay.

How homebuyers can refrain from bearing the cost of PMI

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Acute homeowners can get off the hook sooner than expected. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 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 necessary to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be reflecting the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends hint at falling home values, you should understand that real estate is local.

The difficult thing for almost all homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. It's an appraiser's job to keep up with the market dynamics of their area. At Allen Appraisal Service, we're masters at determining value trends in Washington, Washington County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little trouble. 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