Have equity in your home? Want a lower payment? An appraisal from C.D. McCullough Real Estate Appraisal can help you get rid of your PMI.

It's largely understood that a 20% down payment is accepted when purchasing a home. Since the risk for the lender is often only the remainder between the home value and the amount due on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changesin the event a borrower is unable to pay.

Lenders were accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower defaults on the loan and the value of the house is less than what the borrower still owes on the loan.

PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender takes in all the costs, PMI is favorable for the lender because they collect the money, and they receive payment if the borrower defaults.

How homeowners can keep from 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 equals 78 percent of the primary loan amount. The law stipulates that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.

It can take many years to arrive at the point where the principal is only 20% of the initial loan amount, so 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 what's the reason for paying it after your loan balance has fallen below the 80% mark? Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends forecast plummeting home values, you should realize that real estate is local.

The toughest thing for many homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At C.D. McCullough Real Estate Appraisal, we know when property values have risen or declined. We're experts at analyzing value trends in Colton, San Bernardino County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally 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