PMI how much to pay if apprasial is lower than purchase price?

Question

I know that PMI is an amount you pay if you don't put a down payment of at least 20% of the value. If the apprasial value is higher than the purchase price the lower price is used for the 20%. The question is if the apprasial value of the home is less than the purchase price how much do you have to pay in to be considered not required to pay PMI? This is a property in NYC.

eg. Purchase price = 100,000;
apprasial value = 50,000

what is the down payment amount without being subject to PMI?
a) 20% of purchase price = 20,000 or
b) 20% of value + difference = 60,000 = (20% of 50,000 + (100,000 - 50,000) difference between purchase price and appraisal)

Thanks

or c) the difference $50,000 only


Note I'm sure this can happen if you already signed a contract and the price of the home drops. Let's just hope my place doesn't drop to drastically before closing with is still pending (new construction). Need to make sure the funds are available when I am closing.

By the way the above is just an example and not the actual facts. I basically exaggerated the facts and amounts

Answer 1

The loan to value will be based upon the purchase price or appraisal value whichever is less. Therefore you will have to buy it down to appraisal value. I would look at a non conforming loan or sub prime loan as it wont have pmi. The end payment will be based on a slightly higher interest rate but will still be less than a conforming loan + PMI. You might be well served to get a second appraisal.

Answer 2

First of all, not all lenders charge PMI. Second, you can avoid PMI in any case by taking out an 80% first and a 20% second.
Third, a purchase price that is twice the appraised value is going to raise a HUGE red flag to any lender, as either you are crazy or some fraud is going on. IF you can find a lender willing to consider this scenario, you are going to have to put down at least the $50K difference between the sale price and appraised value. I'd say that PMI is the least of your problems at this point.

Answer 3

Who is going to lend you MORE than the appraisal? Under your scenario you should pay $50,000 in cash & PMI on $20,000 of a $50,000 mortgage.

Answer 4

something that was not mentioned-
NY state specifically uses the appraised value (NOT the sale price), when calculating mortgage insurance.

so, your appraised value needs to be used to calculate your LTV (loan to value), when figuring out the mortgage insurance.

from what you stated above, having a sale price differ from the appraised value by 50% is going to be hard to explain to a lender

Answer 5

20 percent of the loan amount.

However, I wouldn't buy that property if it's appraised for 50k and selling for 100k. Find somewhere else to put your stuff.