Appraisal came in high, PMI question (loan officer, interest rate, fees, upfront)

[JenJen3574]

My first post here after lurking awhile - please be gentle.

My husband and I are buying a short sale home for 270k. Our appraisal on this home just came in at 296k. We already planned to put 10% down (27k) but could easily up that to 28k. If we did that, we would have 20% equity in the home considering the 26k "extra" that the home appraised for by the lender's own chosen appraiser.

So you see where I am going? The guy handling our mortgage application is of course saying we still have to pay the PMI because it is based on purchase price of the home and not the value. I'm seeing that same answer in my research and even in a thread or two here. If someone knows anything different please feel free to clue me in.

My question is what, if any, strategy can I use to have the PMI removed quickly once the loan closes? An immediate refinance would cost $1090, and our monthly PMI is $78, so it would take only a little over a year to recoup the cost. Is this my best option? Any other ideas?

[TimtheGuy]

Originally Posted by JenJen3574

My first post here after lurking awhile - please be gentle.

My husband and I are buying a short sale home for 270k. Our appraisal on this home just came in at 296k. We already planned to put 10% down (27k) but could easily up that to 28k. If we did that, we would have 20% equity in the home considering the 26k "extra" that the home appraised for by the lender's own chosen appraiser.

So you see where I am going? The guy handling our mortgage application is of course saying we still have to pay the PMI because it is based on purchase price of the home and not the value. I'm seeing that same answer in my research and even in a thread or two here. If someone knows anything different please feel free to clue me in.

My question is what, if any, strategy can I use to have the PMI removed quickly once the loan closes? An immediate refinance would cost $1090, and our monthly PMI is $78, so it would take only a little over a year to recoup the cost. Is this my best option? Any other ideas?

As far as I know, your value for the first 12 months is the lesser of the purchase price or the appraisal. So, as far as a lender is concerned your value will be $270k for a year even though the appraisal says different. Their logic would say if the property were really worth $296k then someone would have outbid you.

[chet everett]

The appraisal is basically MEANINGLESS for the purposes of PMI. You have to have 20% down. relative to selling price / 1st mortgage.

A immediate refi is not the way to make PMI go away either, as there is NO guarantee that the refi appraisal would come in where the lender's did AND you'd have the costs too.

If you do not have enough cash to put 20% down you can explore getting a second for the difference, though you'd need to play with the number until you came up with a solution that ended up with LESS money leaving your money on a monthly basis -- the second would have a higher rate and you'd need to borrow enough for the lender to give your a fair deal. How much is PMI?

[JenJen3574]

A immediate refi is not the way to make PMI go away either, as there is NO guarantee that the refi appraisal would come in where the lender's did AND you'd have the costs too.

But, if I go with the same lender when I refi aren't they going to use the same appraiser? Might they even waive having to do another appraisal if I'm refi-ing within a few weeks to a month of the closing??

[chet everett]

JenJen:

I think you are making several faulty assumptions. To begin with, why / how would the SAME lender that just wrote you a mortgage with PMI be willing to write a new one w/o? PMI is there for them to be able to resell the mortgage on the secondary market at a better rating than one with out. They make money on such secondary marketing and they make money on the PMI. If they wrote you a new mortgage IMMEADIATELY after the first the only possible source of income for them would be the FEES that they would have to charge you. They are not going to "waive" anything.

I don't mean to offend but lenders ARE not in this game to make people happy. Sure they might have smiling families moving into homes on their web sites, but the reason they lend money is to make money. PMI helps them make money. It comes from your pocket and goes to theirs.

Clear?

[Modification Specialist]

Originally Posted by chet everett

The appraisal is basically MEANINGLESS for the purposes of PMI. You have to have 20% down. relative to selling price / 1st mortgage.

A immediate refi is not the way to make PMI go away either, as there is NO guarantee that the refi appraisal would come in where the lender's did AND you'd have the costs too.

If you do not have enough cash to put 20% down you can explore getting a second for the difference, though you'd need to play with the number until you came up with a solution that ended up with LESS money leaving your money on a monthly basis -- the second would have a higher rate and you'd need to borrow enough for the lender to give your a fair deal. How much is PMI?

Well said Chet.

Agree the appraisal is meaningless - your are putting 20% down based on the selling price.

If this is going to be a primary home and your loan officer is putting you into a FHA loan. FHA loans have mandatory PMI which drops off after five years.

my $0000.02 cents....

[Debsi]

I researched this subject today.

If your loan is sold to Freddie Mac or Fannie Mae, you will be eligible to cancel mortgage insurance no sooner than two years after the origination date. You will have to pay for an appraisal (ordered via the mortgage company, don't get it yourself) and if the LTV comes in at 75% or less the PMI will be dropped.

If you wait FIVE years, the appraisal ordered as above needs to come in at 80% or less to drop PMI.

There are also requirements regarding a clean payment history.

[dad2jules]

Your Loan to Value is calculated using the lesser of the a) purchase price or b) appraised value for 1 year.
If possible have the bank pay the closing costs on your purchase so when you go to refi you'll only pay closing costs once.

[volk2k]

Originally Posted by Modification Specialist

If this is going to be a primary home and your loan officer is putting you into a FHA loan. FHA loans have mandatory PMI which drops off after five years.

I believe that MIP on an FHA loan only drops off after five years if you have paid down 22% of the original purchase price.....meaning that you WILL have to pay more than your normally scheduled payment to get to that 22% equity... It does not just drop off after 5 years.

For most FHA loans, MIP will take approximately 10 years to drop off (depending on interest rate) if regular payments are paid.... in fact that exact payment date is written into your mortgage agreement.

One other "negative" point about MIP with an FHA loan is that even if you purchase your home today for $100K... and it appraises at $500K next week, you will still not be able to remove MIP for 5 years.

Another "negative" You have to pay a 1.75% Upfront MIP payment.... Try to get your seller to pay for this But if you can't, it can be rolled into the mortgage.

[mumra]

Just be happy your house appraised for 26k more in this market. Relax, you got a good deal. Just move in and enjoy the house!