Have equity in your home? Want a lower payment? An appraisal from Shamrock Appraisals, Inc. can help you get rid of your PMI.

A 20% down payment is typically accepted when buying a house. The lender's risk is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, reselling the home, and typical value fluctuations on the chance that a purchaser is unable to pay.

The market was accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender endure the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the market price of the house is less than what the borrower still owes on the loan.

PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and many times isn't even tax deductible. Contradictory to a piggyback loan where the lender consumes all the deficits, PMI is beneficial for the lender because they acquire the money, and they get paid if the borrower defaults.

How buyers can avoid bearing the cost of PMI

With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Wise homeowners can get off the hook a little earlier. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.

It can take many years to get to the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things settled down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.

An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Shamrock Appraisals, Inc., we're masters at determining value trends in Tuscaloosa, Tuscaloosa County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little trouble. 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