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When talking about the magic '80% LTV' figure for PMI, what 'value' is used for this calculation? We're in the process of buying a house that we believe is priced well under what it's worth. So, if the 'value' used is the market value of the house (which I'm guessing is based on the appraisal done by my lender), that would mean I wouldn't need to put down 20% to get the LTV under 80%, right? Or is 'value' just whatever I pay for the house?
Then it's based on the lower of the purchase price or appraised value. However if there truly is equity in the property, per an appraisal, then 6 months after you purchase you can refinance using the current appraised value and remove/reduce the PMI that way (as long as you aren't taking cash out). Most lenders will require you own the home for 12 months to use an appraised value higher than the purchase price, but there are still many who will be OK after just 6 months.
Many lenders also require 2 years of payments before allowing PMI to be dropped based on an updated appraisal. FHA mortgages I believe are this way.
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