Questions regarding PMI?

Question

If I am buying a foreclosed home for 219k of which 208k is being financed (5% down approx.) and the home comes back at being valued at 285k from my mortgage company, am I still required to pay PMI? If so, how in the future would I be able to eliminate it?

Answer 1

This is a pretty common misconception. Your lender is basing your PMI on your purchase price, not the appraisal. What you are paying for the home on this transaction is going to be the benchmark - the $219,000 purchase price. You will pay PMI based on this alone.

You could pay the PMI for 6 months and then consider a refinance with a new appraisal and basis for home value. Or you can look into options now for LPMI, which is lender-paid PMI and you can pay the PMI up front and never have to worry about it again.

Feel free to contact me if you have questions. I've included a link about LPMI.

Answer 2

There as been a new law passed that make some homeowners being able to deduct PMI on their Federal Income tax. You should check with your tax consultant to see if you are qualified to make this deduction.

You are financing 95% of the sales price of the house you are purchasing and this is the price the lender will use to determine if PMI is to be charged.

You may eliminate PMI when ever your current loan balance on your home drops below 80% of of your loan amount. You can prove this by getting an appraiser to back up your claim about the value.

When you think you have reached this thrush hold you should contact your lender. Now in some cases you normally would not have a problem. In rare instances you get a lender that is a hard nose company. That is when you need to get the appraiser to back up your claim.

In some cases you are not dealing with your lender when you make this request, so if they give you a hard time, ask if they are the lender or the servicer. If they are the servicer, tell them you would like to speak with the lender directly about this problem.

You might also start keeping a list of the names you speak to at this place in the event they give you a hard time.

If you fail to get the lenders name and they insist on you paying the PMI after you hav sent them a copy of the appraiser indicating that your mortgage loan amount is less than 80% of your balance.

You may start filing in small claims court. Make sure you have all the names of the people you have taked to at the mortgage company where you pay your mortgage, take your appaiser as well as the appaisal itself.

If you have all your ducks in order and after the 2nd time they should drop the PMI, but some are just plain hard headed and think the consumer will just stand and take what they put out and do nothing.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 3

At purchase, the lender treats the value as being the *lesser* of cost (purchase price) or market (appraisal).

So if your purchase price is $219k, that's the most the lender will consider it to be worth.

A previous answerer said refinance in six months. Lots of luck with that. In the current market, lenders are reverting to their standards of several years ago, which is (barring some intervening factor, like you showing you spent $50,000 upgrading it), the most a lender will believe within one year of purchase is 10%. Were I in your shoes, I'd plan on waiting a year, then doing whatever your state law says is necessary to remove PMI (might be appraisal, might be broker's price opinion), but there have just been too many people over-evaluating property in return for some special compensation (i.e. accepting bribes to return a higher number on the value)

PMI is not a good thing, but it may be the only way to get the loan.

(There is a law in effect that makes regular PMI tax deductible for tax year 2007 *ONLY*. How much good is that going to do you with only 6 weeks to go in the year? This might get re-enacted next year, but an extension was already defeated this year, so it's not looking good)

Now you *do* have the option with a lot of lenders, of converting to LPMI, or lender paid mortgage insurance. This folds PMI right into the basic rate of your loan, so (unlike regular PMI+), it usually becomes tax deductible. On the other hand, because it's written into the basic Note rate, so unlike regular PMI, you need to refinance to get rid of it. Since most people spend thousands of dollars to refinance, this isn't a good bargain unless you figure the rates to go down. I don't, or at least not much. If I were to decide to accept LPMI, I'd almost certainly want a true zero cost loan *now*, accepting the higher rate that comes with it, and quite likely a hybrid ARM as well instead of a thirty year fixed rate loan. The reason for this is that I'm never going to recover closing costs through lowered cost of interest in only one year. In other words, accepting LPMI means I've made up my mind to refinance in a year, or sooner if I can find a lender that will do it.

If I was getting a loan for the purchase where I'm paying closing costs and points to buy it down, regular PMI is the way to go. If I have to refinance in a year, the vast majority of those loan costs will be wasted.

Answer 4

PMI is being required because lenders base their calculation of loan to value on the sales price or appraised value, whichever is less.

You are required to maintain private mortgage insurance until you are able to prove that the loan to value is less than 80% (servicers usually want a depreciation cushion so estimate 75% loan to value) and have a track history of maintaining your mortgage payments in an as agreed manner.

2 years is the common benchmark.

Answer 5

THere is no law that allows PMI to be deducted. PERIOD.

Answer 6

You need to go into the loan with an 80% LTV.