AAAnderson Associates Inc. can help you remove your Private Mortgage Insurance

It's largely understood that a 20% down payment is accepted when purchasing a home. The lender's liability is usually only the remainder between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and typical value variations in the event a purchaser is unable to pay.

The market was accepting down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower doesn't pay on the loan and the value of the home is lower than the balance of 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 monthly payment and often isn't even tax deductible. It's advantageous for the lender because they acquire the money, and they get paid if the borrower doesn't pay, opposite from a piggyback loan where the lender takes in all the damages.

How buyers can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law designates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, keen homeowners can get off the hook a little early.

Considering it can take countless years to get to the point where the principal is only 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've accomplished over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict decreasing home values, be aware that real estate is local. Your neighborhood might not be heeding the national trends and/or your home may have gained equity before things cooled off.

The difficult thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. It is an appraiser's job to keep up with the market dynamics of their area. At AAAnderson Associates Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Vancouver, Clark County and surrounding areas. Faced with information from an appraiser, the mortgage company will often drop the PMI with little trouble. At which time, the homeowner can retain 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