Let Nordquist Appraisal LLC help you determine if you can get rid of your PMI

A 20% down payment is usually accepted when purchasing a home. The lender's liability is usually only the remainder between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value changes in the event a borrower defaults.

During the recent mortgage upturn of the last decade, it became widespread to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to manage the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower is unable to pay on the loan and the worth of the home is lower than the balance of the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and generally isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender absorbs all the deficits, PMI is favorable for the lender because they obtain the money, and they get paid if the borrower defaults.

How buyers can prevent paying PMI

With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.

It can take countless years to reach the point where the principal is only 20% of the initial amount of the loan, so it's necessary to know how your home has increased in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends indicate falling home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home could have gained equity before things settled down.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Nordquist Appraisal LLC, we're masters at identifying value trends in Pittsburgh, Allegheny County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At which time, the homeowner 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