Kesterson Appraisal Services can help you remove your Private Mortgage Insurance

It's largely understood that a 20% down payment is accepted when purchasing a home. Considering the risk for the lender is often only the remainder between the home value and the amount due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value variationson the chance that a borrower doesn't pay.

During the recent mortgage upturn of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the value of the home is lower than what the borrower still owes on the loan.

PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the deficits, PMI is advantageous for the lender because they acquire the money, and they get paid if the borrower doesn't pay.

How can home owners prevent bearing the expense of PMI?

The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook sooner than expected.

It can take many years to reach the point where the principal is just 20% of the original amount of the loan, so it's essential to know how your home has increased in value. After all, every bit of appreciation you've obtained over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends hint at decreasing home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have gained equity before things cooled off.

A certified, licensed real estate appraiser can help home owners 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 know the market dynamics of our area. At Kesterson Appraisal Services, we're masters at recognizing value trends in West Des Moines, Polk County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally eliminate the PMI with little anxiety. At which time, the home owner 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