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

 It's typically inferred that a 20% down payment is common when purchasing a home. The lender's only liability is typically just the remainder between the home value and the balance remaining on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and typical value changes on the chance that a borrower defaults.

During the recent mortgage upturn that our country recently experienced, it was customary to see lenders reducing down payments to 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the market price of the home is less than the loan balance.

Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. Different from a piggyback loan where the lender takes in all the deficits, PMI is favorable for the lender because they obtain the money, and they get the money if the borrower is unable to pay.

How buyers can avoid bearing the expense of PMI

The Homeowners Protection Act of 1998 forces lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart homeowners can get off the hook sooner than expected. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.

It can take many years to reach the point where the principal is only 80% of the initial amount borrowed, so it's essential to know how your California home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not adhere to national trends and/or your home may have gained equity before things cooled off. So even when nationwide trends forecast falling home values, you should realize that real estate is local.

The hardest thing for almost all homeowners to figure out is just when their home's equity rises above the 20% point. A certified, California-licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Allen Ottoson Real Estate & Appraisal, we know when property values have risen or declined. We're experts at determining value trends in Diamond Bar, Los Angeles County, and surrounding areas. Faced with data from an appraiser, the mortgage company will generally cancel the PMI with little effort. At this time, the homeowner can delight in the savings from that point on.