Have equity in your home? Want a lower payment? An appraisal from Oleson Real Estate Appraisers, Inc. can help you get rid of your PMI.

A 20% down payment is typically accepted when buying a house. Considering the liability for the lender is usually only the difference between the home value and the sum due on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuationsin the event a borrower is unable to pay.

Lenders were working with down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the market price of the property is lower than what the borrower still owes on the loan.

PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they collect the money, and they get paid if the borrower doesn't pay.

How can home buyers avoid bearing the cost of PMI?

With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Savvy homeowners can get off the hook a little early. The law states that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.

Since it can take countless years to arrive at the point where the principal is only 20% of the original loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends forecast declining home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things settled down.

An accredited, 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 is an appraiser's job to understand the market dynamics of their area. At Oleson Real Estate Appraisers, Inc., we know when property values have risen or declined. We're experts at pinpointing value trends in Dundee, Yamhill County and surrounding areas. Faced with information from an appraiser, the mortgage company will generally drop the PMI with little effort. At which 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