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

It's largely understood that a 20% down payment is the standard when purchasing a home. Considering the liability for the lender is usually only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and natural value changeson the chance that a borrower defaults.

During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower defaults on the loan and the value of the home is lower than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. It's beneficial for the lender because they obtain the money, and they get paid if the borrower is unable to pay, opposite from a piggyback loan where the lender takes in all the losses.

How can a homebuyer prevent bearing the cost of PMI?

With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Acute homeowners can get off the hook ahead of time. The law promises that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent.

Considering it can take countless years to arrive at the point where the principal is just 20% of the initial loan amount, it's essential to know how your home has grown in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood may not be following the national trends and/or your home might have gained equity before things settled down.

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 AAAnderson Associates Inc., we're masters at pinpointing value trends in Vancouver, Clark County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will generally do away with the PMI with little effort. At which time, the home owner 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