Have equity in your home? Want a lower payment? An appraisal from Lake Country Valuation can help you get rid of your PMI.

A 20% down payment is usually the standard when getting a mortgage. Since the risk for the lender is often only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and typical value fluctuationsin the event a purchaser is unable to pay.

During the recent mortgage boom of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. This supplemental policy guards the lender if a borrower is unable to pay on the loan and the value of the property is less than what the borrower still owes on the loan.

PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get paid if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the losses.

How can a homebuyer avoid bearing the cost of PMI?

The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Smart homeowners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent.

Because it can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, it's important to know how your home has grown in value. After all, any appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Your neighborhood may not be adhering to the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends hint at declining home values, you should understand that real estate is local.

A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At Lake Country Valuation, we know when property values have risen or declined. We're experts at determining value trends in Marble Falls, Burnet County and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally drop the PMI with little effort. At that 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