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Let The August Group Inc. help you learn if you can eliminate your PMI

A 20% down payment is usually the standard when buying a house. Because the liability for the lender is generally only the difference between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and regular value variationsin the event a purchaser defaults.

Lenders were accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the mid 2000s. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the house is lower than what is owed on the loan.

PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the deficits, PMI is money-making for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.

Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.

How homebuyers can avoid bearing the cost of PMI

The Homeowners Protection Act of 1998 obligates 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. The law guarantees that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, savvy home owners can get off the hook a little early.

It can take countless years to reach the point where the principal is just 20% of the original loan amount, so it's necessary to know how your home has increased in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Even when nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have secured equity before things calmed down.

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 hard thing to know. As appraisers, it's our job to understand the market dynamics of our area. At The August Group Inc., we know when property values have risen or declined. We're masters at identifying value trends in St Louis, Saint Louis County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little trouble. At which time, the home owner can relish 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

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