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 widely inferred that a 20% down payment is the standard when purchasing a home. The lender's liability is usually only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and typical value changes on the chance that a borrower defaults.

Banks were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This additional policy guards the lender in case a borrower defaults on the loan and the market price of the house is lower than the balance of the loan.

Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. Different from a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they secure the money, and they get paid if the borrower doesn't pay.

How can homeowners avoid paying PMI?

The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, keen home owners can get off the hook a little early.

Considering it can take many years to reach the point where the principal is just 20% of the initial amount borrowed, it's necessary to know how your home has appreciated in value. After all, every bit of appreciation you've obtained over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate plummeting home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things simmered down.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Allen Appraisal Service, we know when property values have risen or declined. We're experts at analyzing value trends in Washington, Washington County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. At which time, the homeowner can enjoy 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