profile picture

Let Crest Appraisal Services help you decide if you can eliminate your PMI

When buying a house, a 20% down payment is usually the standard. Since the risk for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and natural value variationsin the event a purchaser is unable to pay.

During the recent mortgage boom of the last decade, it became common to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the market price of the home is less than what is owed on the loan.

PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible. It's profitable for the lender because they secure the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender takes in all the costs.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How can homebuyers avoid paying PMI?

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Keen home owners can get off the hook sooner than expected. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.

Considering it can take countless years to reach the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has grown in value. After all, any appreciation you've accomplished over time counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home could have secured equity before things simmered down, so even when nationwide trends predict falling home values, you should realize that real estate is local.

The difficult thing for most homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Crest Appraisal Services, we know when property values have risen or declined. We're experts at identifying value trends in Seattle, King County and surrounding areas. Faced with figures from an appraiser, the mortgage company will most often do away with 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