Have equity in your home? Want a lower payment? An appraisal from Pacific Home Inspection & Appraisal can help you get rid of your PMI.

It's largely inferred that a 20% down payment is accepted when purchasing a home. Since the risk for the lender is oftentimes only the remainder between the home value and the sum 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 doesn't pay.

During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to endure the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the home is less than the balance of the loan.

Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI can be costly to a borrower. Opposite from a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they collect the money, and they receive payment if the borrower doesn't pay.

How home buyers can avoid paying PMI

With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Wise homeowners can get off the hook sooner than expected. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.

Because it can take many years to arrive at the point where the principal is only 20% of the original amount borrowed, it's essential to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends signify declining home values, you should understand that real estate is local.

An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Pacific Home Inspection & Appraisal, we know when property values have risen or declined. We're masters at pinpointing value trends in Calabasas, Los Angeles County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little effort. At which time, the home owner 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