What is PMI and how to get rid of it

Assuming a reasonable credit rating, any potential home buyer can secure a loan for a house. Why? Because these transactions are secured by a very valuable asset: the home itself. 
Home loans are typically based on a percentage of a home's value. The cushion this provides the lender helps ensure that their losses from loan defaults are kept to a minimum.

In recent years, loans have been based on an increasingly higher percentage of the home's value. This presents the lenders with a lot more risk. To offset this risk, these transactions often require Private Mortgage Insurance or PMI. This supplemental policy protects the lender in case a borrower defaults on the loan, and the value of the house is lower than the loan balance.

In 1999 the Homeowners Protection Act took effect. In most cases, this law now obligates lenders to terminate the PMI when the principal balance of the loan reaches a certain percentage of the original loan amount. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches 80 percent.

It is important to note that this law only applies to home loans - whether first time or refinances - that closed after July, 1999. Also certain other conditions must be met, such as being current on the loan payments. Buyers that purchased before July 1999 may also have their PMI removed, but they must initiate the process and the lender is under no obligation to do so.

The hardest thing for most home owners to know is just when does their home equity increase a sufficient amount to warrant the elimination of PMI. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their area. They know when property values have risen - or declined. Many appraisers offer specific services to help customers find the value of their homes and remove PMI payments. 

For more information on PMI and the Homeowners Protection Act, try one of these links:

Cancellation of Private Mortgage Insurance: Federal Law May Save You Hundreds of Dollars Each Year

Private Mortgage Insurance (PMI): Law Requires Lenders to Cancel PMI