Cancel PMI with a Certified Appraisal

Let us help you discover if you can cancel PMI

It’s generally inferred that a 20% down payment is accepted when buying a house. Considering the liability for the lender is oftentimes only the difference between the home value and the amount remaining on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations on the chance that a borrower doesn’t pay.

During the recent mortgage upturn of the last decade, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower doesn’t pay on the loan and the market price of the house is lower than what the borrower still owes on the loan.

Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and generally isn’t even tax deductible, PMI is costly to a borrower. It’s beneficial for the lender because they secure the money, and they get paid if the borrower doesn’t pay, different from a piggyback loan where the lender consumes all the deficits.

How buyers can prevent paying 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 primary loan amount. The law designates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.

It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it’s crucial to know how your home has increased in value. After all, any appreciation you’ve gained over the years counts towards abolishing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends signify decreasing home values, realize that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have gained equity before things simmered down.

An accredited, 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. It is an appraiser’s job to understand the market dynamics of their area. At IAS Residential Appraisal Services, we’re experts at identifying value trends in Chicago and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will usually cancel the PMI with little effort. At which time, the homeowner can retain the savings from that point on.