Integrated Assets can help you remove your Private Mortgage Insurance

It's widely known that a 20% down payment is the standard when purchasing a home. Because the liability for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value fluctuationson the chance that a borrower is unable to pay.

During the recent mortgage upturn of the last decade, it was common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This added policy takes care of the lender if a borrower is unable to pay on the loan and the value of the property is less than the balance of the loan.

PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower defaults, different from a piggyback loan where the lender consumes all the losses.

How can a buyer prevent paying PMI?

The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Smart homeowners can get off the hook sooner than expected. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent.

It can take many years to reach the point where the principal is just 20% of the original loan amount, so it's important to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home might have secured equity before things settled down, so even when nationwide trends signify plummeting 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 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 Integrated Assets, we know when property values have risen or declined. We're experts at analyzing value trends in Memphis, Shelby County and surrounding areas. When faced with information from an appraiser, the mortgage company will often remove the PMI with little anxiety. At that 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