We are putting in an offer on a house for 110K, but the house is appraised at 153K (long story I’ll save you the details) We are more than likely getting the house for this price. I asked our lender if we would have to pay PMI then since the house’s value is so much more than what we’re paying and she said yes.
However, I know a friend of mine said they put 0% down on there house and had it appraised 2 years later and the value of the house had increased so much more than what they paid that they got the PMI dropped. Why is my lender saying that’s not possible? Anyone know?
It’s not through FHA – we are putting between 10-15% down depending on final price.
Clark Kent
April 28, 2010 at 10:24 am
The appraisal is not the controlling factor. If you pay less than 20% down you are normally going to pay for PMI.
I sold a house for only 10% down with no PMI but that was because I carried the note. It saved the buyer a bundle and I’m collecting a lot of interest.
mscarriem
April 28, 2010 at 11:13 am
you loan amount is based on lower of purchase price or appraised value, since your purchase price is lower than appraised value the loan amount is based on that. IF you put 20% down you will have no PMI, if you put 0-19% down you will pay PMI, if you are taking a FHA loan you will pay PMI for 5 years
You can try and refinance after 12 months if the value stays up and get a new loan
Mikey
April 28, 2010 at 11:20 am
PMI can only be dropped when the LOAN value is paid down 20% – has nothing to do with the value of the home – only the loan.
If you put down 20% when you get the loan than you can get PMI dropped.
Federal gov’t loans are secured by the gov’t and don’t require PMI – FHA loan
Mikey had a FHA loan and never , never had PMI. That was in 1996 – maybe the law changed.
sybbo
April 28, 2010 at 12:08 pm
You shouldn’t have to pay PMI if you have 20% equity. In your case, you have 28% equity. You shouldn’t have to pay. Your lender could be lying to you.
I did some research and have not found any new regulations regarding PMI since the mortgage meltdown, but there could be some new regulations. For instance, you may have to have PMI for one year or something.
In any case, don’t you wonder what happened to all of the PMI insurance during this mortgage crisis? Isn’t it supposed to prevent foreclosures and protect the lender? Hmmmm. If it sounds like a big rip-off, you would be correct. Its the same with title insurance. The title insurance is just an extra fee. There are very few title insurance claims ever paid.
Good luck.
SmartA$$
April 28, 2010 at 12:45 pm
That is all up to the lender. They can set the requirements for their loan. You are free to shop around for other lenders who will give you better terms, but each lender can make their own rules regarding PMI.
Typically, if the amount you owe on the mortgage is more than 80% of the value of the house, you’ll have to pay PMI. However, with the current economic situation, banks are being more strict about loan terms.
What your friend did doesn’t really matter. Each loan is a separate deal and a separate legal contract. What your friend did makes perfect sense, and many people have done that. But it really doesn’t affect your situation. All you can do is negotiate the terms with the lender, and if you don’t like them you can shop around for better terms with another lender.
golferwhoworks
April 28, 2010 at 12:56 pm
PMI is based solely on the sales price not the value of the home. You will have PMI unless you put 20% down. The only way to get rid of it is to refi in 1 years time as all will go off the sales price for 1 year or less. Now you can send in an appraisal and in writing request the PMI be removed but in this market probably will not happen. 1 year and if the value is still good then refi is your best bet and any way the PMI is a tax preferences item any ways for the year you will have it
I am a mortgage banker in TN & KY
Pengy
April 28, 2010 at 1:08 pm
The home is worth what the market will support, at one time it might have appraised for 153K but now is only worth 110K as that is what it will or can sell for. Welcome to the declining market which is why you are getting it for that price ie it is not worth 153K