Anyone with experience, please clue me in! We are in the process of getting a mortgage. We will have an additional $10k in "paper" money as the appraisal value was 10k over what we are paying for the house. My question is this: In terms of PMI what are the "rules". Do the banks usually go by the "purchase" price or the appraisal price to determine the 80/20 PMI standard? My mortage broker told me they go by the purchase price, which strikes me as a little odd. Isn't the overall credit exposure to the lender the issue? If that is the case the $10k we made on paper should help bring our 10% down payment closer to 15%, right? Anyone who has any helpful information, please advise. Thanks
I'm NOT an expert...but I thought if you had 20% down, or a loan at 80% or less of the "VALUE" you didn't need PMI...
I bought a house last year - and had a similar situation. The lender used the purchase price - you can think of it this way. The purchase price is *in fact* the market value of the house, while the appraisal is just an estimation and is used to make sure the purchase price hasn't been over-inflated. It was a bummer....
I went through this just a couple months ago. My house was appraised at $20,000 more than what we paid for it (we got quite a deal). The lender is correct when he/she says they go by the purchase price. But there is good news to this. Since your house is appreciating steadily and it is already more than you paid for it in a year or two you can refinance and cancel the mortgage insurance. Otherwise, you have to pay mortgage insurance on the home until it reaches 20% equity. Most people whose houses don't appreciate or are appraised lower then the purchase price usually end up paying 8+ years on PMI. I hope this helps. Dani PS If you don't want to refinance you can contact the mortgage company and ask them to drop the insurance once your house has reached 20% equity. They will send out an appraiser to put a value on your home. They then will drop the PMI (July 1999 law requires them to once your home reaches 20%). Good luck.
See, Dani, that is the point! Why don't they just give you the appraisal value from the get go??? How much sense does it make to have t o wait, get another appraisal, then drop the PMI?? The only sense it makes is to the PMI insurance comapny making rediculous $$. Yet another in a longgggg of ligitimate scams within the mortgage business.
I THINK PMI is "FRONT LOADED"...meaning MOST of the cost/value is in the first few years... It is possible that you may have a refund of say $600 first year...$200 second year...$25 third year...(if paid for in escrow)
OMG I'm about to enter the mortgage fray! ugh!!! We've just started to look into dealing with mortgage banks and so far we've found only two that were real easy going about explaining the products *in general* to us. Most others want to run reports to come up with a package but we don't want to do that just yet. Of the two good banks, only one would be able to help if we decide to build a new house on our existing lot because they do contruction loans. As far as the PMI goes for the contruction loan, they told us they base the value on the actual construction cost for the home--appraisals are subjective because it takes into accout the "ambiance of the neighborhood" whereas the *value* of a newly built house is a known, set amount: the construction cost.
When we bought our house, NOBODY ran a credit report until AFTER we gave all the info to the LOAN OFFICER, after the seller accepted our offer...
IT NEVER ENDS...now I have to decide if we are going to "CASH-OUT RE-FI"... or just "RE-FI NO CASH-OUT" "CASH-OUT" COSTS A POINT OR TWO...(BUT the credit card debt interest becomes 100% tax deductable).
George is correct, your reports should not be run until after you fill out all the paperwork, if they want to run this before or for a GFE, find another lender.
I agree totally with Dani. Once you have the equivalent of 20% equity, (either value or downpayment) you can request PMI to be removed. The only part that I never understood about this scenario was that 'you' as the buyer could always do your own appraisals later on, (paying for them out of your pocket) and if you could show 20% equity, then refinance and get the PMI removed. The homes I have purchased in the past have never had that much equity at the time I bought them, so I never ran into what you have. However, the way I see it, there is no difference in equity now (before the purchase) and later (after you bought it). Why should a buyer be able to refinance next year and get rid of the PMI, but not initially? Doesn't make sense. There is no PMI law that I am aware of that says, "initial loan PMI MUST be based off the purchase price, however buyer can refinance later after the mortgage company and PMI insurer get their cut" If I were ever in your situation, I would argue this point. Maybe you should just inquire with other mortgage companies or brokers and ask just to make sure. You don't need to apply with them, just ask to speak with a loan officer and ask. You never know, you might be able to save a considerable amount of your monthly payment. Remember, mortgage companies and brokers are in business to make money.
I'm in the process of building a home. I signed the building contract one month ago. The home has already appreciated 4k. They are in the process of doing a area reappraisal. If the home appraised for more, how does this affect my PMI?
One option would be to do an 80/20 loan... avoid the PMI... or Go with a reduced PMI program if you do not qualify for the 80/20 .... Depending on the state, you may be better off going with a non-conforming 80/20 to avoid the PMI, and refi out of that once your in a better position to get into a conforming product as an 80/20 or 80/15 ... lotta options.
