Let Duncan Appraisals help you learn if you can get rid of your PMI

A 20% down payment is typically accepted when buying a house. Because the risk for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value variationson the chance that a purchaser defaults.

Lenders were working with down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This added policy takes care of the lender if a borrower is unable to pay on the loan and the worth of the home is less than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they collect the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender absorbs all the losses.

How can a home buyer refrain from paying PMI?

The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law guarantees that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook a little earlier.

Because it can take countless years to reach the point where the principal is only 20% of the initial amount borrowed, it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends forecast decreasing home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have gained equity before things cooled off.

An accredited, 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 Duncan Appraisals, we're masters at pinpointing value trends in Wood Ridge, Bergen 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 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