I am in the process of purchasing a home we got a really good deal on the home. I was told we will be paying PMI insurance on the home because we didn't have 20% downpayment. However, I was told that in 2 years if the home appraised 20+% above our purchase price we would be able to drop the PMI insurance. My question is what if the bank does their appraisal and the current appraisial is 20% over the purchase price, would we still have to pay the PMI insurance??
2007-01-31 03:15:35 · 11 answers · asked by Lori D 2 in Business & Finance ➔ Renting & Real Estate
Since opinions are like lawyers (everyone has one) I'm not going to give you mine but I am going to give you the right answer from the folks that make the law. Here is the link from our research department
HUD Private Mortgage Insurance (PMI) Information: http://www.hud.gov/offices/hsg/sfh/res/respapmi.cfm
Buena Suerte
2007-01-31 04:56:25 · answer #1 · answered by newmexicorealestateforms 6 · 1⤊ 0⤋
I am a mortgage consultant and there are a few different options you have.
One: You can take this loan and then refinance it right away and have a new appraisal done with the real value of the home. In most cases you have to wait approx. 6 months but if ou have really good credit score some lenders will be able to do it the day after you sign this loan. Just make sure you do not have a pre-pay penalty on the loan.
Two: You can but the current mortgage into two loans. The first loan will be 80% of the purchase price and the second will be 20%. Then you will not have PMI and give yourself sometime to do the refinance. This will also give you a lower interest rate on the first, but a higher on the second. Sometimes this is cheaper then doing the PMI, but sometimes not. It depends on the case.
Three: Or you can do the other way that you already know. Which works as well.
Again watch for pre-pay penalties and I would maybe check another lender to make sure you are getting the best deal you qualify for, if you have not already....
Congratulations on the new home and good luck, need any more help or info please fell free to contact me...
2007-01-31 04:41:00 · answer #2 · answered by Anthony P 2 · 1⤊ 1⤋
Any chance you got this great deal because you're buying from a relative or someone you know? If so, you could have them give you a "gift of equity" for the overage between appraised value and your "purchase price". If that is 20%, you could avoid the MI right out of the gate. Seller might incur an extra $1-300 in selling costs and deed taxes, so you could reimburse them for that. This only works if you are related or have a long-standing relationship with this person.
Otherwise, I'd suggest taking out an 80/20, and simply refinance the 2nd mortgage shortly after closing.
If the 2nd would really only be up to 80% loan to value, based on the appraised value, you should be able to find a bank (try local credit unions first) to drop the rate down well below what it would be at 100%. You should be able to do this with little to no closing costs, maybe $3-500 on the high side, but usually the banks will pay them for you.
Doing this will help you avoid paying a full round of closing costs just to refinance, saving you $4-6000 or more depending on your offers. I'd rather save that money, and have a 2nd at a fractionally higher rate than my first mortgage. Ultimately, you'd come out far ahead.
Some banks will only look at the value of your home as the purchase price for the first year. This is called "seasoning". So, when you shop for your 2nd, you'll want to ask upfront what their rules are for seasoning of value. They should know exactly what you mean. In my experience, it's the local banks and credit unions who aren't so picky on that issue.
2007-01-31 05:47:01 · answer #3 · answered by Anonymous · 0⤊ 1⤋
No! The intial loan advance is always based on the lesser of purchase price or appraised value. So even if the appraisal comes back 20% above price, the loan is still strucutred based on the price since this is the lesser of the two.....it's a little comnplicated and sorry for confusing you.
What the bank is basically saying is that in 2 years you can refinance and drop PMI if the appaised value holds 20% above the purchase price.....
2007-01-31 03:31:19 · answer #4 · answered by boston857 5 · 0⤊ 1⤋
Yes. All the bank will be interested in knowing is if it appraised or worth the PURCHASE price - not necessarily the "true" value of the home.
I would also shop around very carefully as it is rare today that you can't find a loan product without PMI and your loan officer that you're working with should be explaining all of this to you. If not - find someone else. Seriously.
Congratulations on your new home!
2007-01-31 03:23:02 · answer #5 · answered by ☼High☼Voltage☼Blonde☼ 4 · 0⤊ 1⤋
unfortunately yes, under RESPA lenders must use the contract price of the home and not the appraised value, you can however refinance after close and if that appraisal came in to where you owe less then 80% of the homes value the PMI would drop, you should also contact your lender regarding an 80/20 piggyback transaction to avoid the mortgage insurance (pmi)
2007-01-31 03:21:13 · answer #6 · answered by Scott K 2 · 1⤊ 0⤋
Getting out of PMI can be tricky. Different lenders have different rules regarding it and how long you have to carry it before it can be removed. You really need to check with the bank to see what their rules are regarding it. In most cases you will still be required to pay it for the first 2 years.
The good news is that congress just passed a law, starting this year PMI is now considered tax deductible for loans taking out this year. So at least now, while it may increase your monthly payments it will not be a total loss.
2007-01-31 05:36:29 · answer #7 · answered by Anonymous · 1⤊ 0⤋
Probably yes... the appraisal done before purchasing is typically not a thourough appraisal. Basically, the appraiser knows the purchase price and the bank just wants to make sure it will appraise for that amount. Therefore, as long as it appraises for at least the selling price, the appraiser will "stop looking" for extras that would increase the appraisal amount. Also, if you are buying a house that you think will appraise for 20% more than the selling price, you are getting a great deal!
2007-01-31 03:30:14 · answer #8 · answered by Jodi F 2 · 1⤊ 1⤋
NOPE. After you buy the home, you can get a paid appraisal and show that you have 20% equity and dispense with PMI, depending on your PMI contract--read it carefully. There is the Gift of Equity option, but that may/can have a negative tax impact on your relatives. Do talk with your lender, with several lenders to see, but creative structuring is rare now.
2016-05-23 22:51:09 · answer #9 · answered by Anonymous · 0⤊ 0⤋
All you need to do is refinance your home, have the appraisal performed and bye bye to PMI. I just did it and I knocked $68 a onth off of my payment plus another $100 a month with the new interest rate!! Do it quick!!!!!
2007-01-31 03:26:55 · answer #10 · answered by Paul V 6 · 0⤊ 1⤋