PMI Removal

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I have done some research but can't seem to find a direct answer to this question.

If my wife and I purchase a foreclosed home for $135k but the market value is assessed (by the lending bank) as $170k, do we still have to pay PMI if we are only putting down 3% of the borrowed mortgage?  If more details are needed, please just ask.  Thank you.

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Yes.

If you refinance immediately (i.e. in 6 months), AND the new appraisal ordered for refinance concludes that the value is assessed at 170k (remember - they have no incentive to find the value to be high - PMI is profitable!) - then you won't need a PMI in the new, refinanced loan!

​3% of $130k is $4k. 20% of $130k is $26k.

Are you sure you are financially ready to buy a house if you can't come up with the $22k difference?

Who says OP "can't" come up with the difference? Maybe OP is strategically putting as little money possible into the home to rehab it and flip it? Why tie up all of that cash and then spend more cash to rehab, just to get it all back relatively quickly?

I thought PMI requirement was based on LTV rather than purchase price, it's just that in most cases the appraisal conveniently ends up at exactly the purchase price or a bit more?
OP's 3% down on 135k still leaves a LTV of 77% which is below the usual 80% that triggers PMI requirement assuming the house really does appraise at 170k (this part seems unlikely).

I believe it's based on purchase price/financed/downpayment. At least that's how it worked for me when i purchased a property that appraised much higher than final costs. It was a rehab though, and we did get rid of PMI after refinancing. HOWEVER OP you need to make sure the cost of refinancing outweighs the removal of PMI

Yes, it goes off the purchase price.

More accurately, it's the lesser of appraisal or purchase price on a purchase mortgage

jaytrader said:   Who says OP "can't" come up with the difference? Maybe OP is strategically putting as little money possible into the home to rehab it and flip it? Why tie up all of that cash and then spend more cash to rehab, just to get it all back relatively quickly?
  If he's honest that isn't what he is doing because lenders don't give loans with 3% dp on a flip.

Unless something is new, PMI no longer comes off FHA loans anymore even below the 20+ percent threshold. On a conventional loan, it would come off...just not FHA

cdddazz said:   
jaytrader said:   Who says OP "can't" come up with the difference? Maybe OP is strategically putting as little money possible into the home to rehab it and flip it? Why tie up all of that cash and then spend more cash to rehab, just to get it all back relatively quickly?
  If he's honest that isn't what he is doing because lenders don't give loans with 3% dp on a flip.

  Uh, what? Not sure I agree with that. Especially if OP is a first time flipper.

sharpie130 said:   Unless something is new, PMI no longer comes off FHA loans anymore even below the 20+ percent threshold. On a conventional loan, it would come off...just not FHA
  There are FM products that are 3%/97% LTV which are not FHA loans.

Doesn't this also trigger a new Tax assessment?

PMI is based on the lower of the purchase price or market value at the time of purchase. You would have to refinance the home and get an appraisal to get out of paying PMI with most loans. You should be able to do it without refinancing by getting an appraisal and writing to th ebank to cancel the PMI.

There are many different types of mortgages that avoid PMI to consider. You can get 10% down loans with no PMI, VA loans, or even 80/20 loans with no PMI and no downpayment.

sharpie130 said:   Unless something is new, PMI no longer comes off FHA loans anymore even below the 20+ percent threshold. On a conventional loan, it would come off...just not FHA
 


I dug into this for some time for my recent home purchase, got thoroughly frustrated with the myriad of confusing information I found from everyone (seems everyone is confused) and threw up my hands and decided to put 20% down to avoid all this mess altogether.

What I understood is that PMI schedule is calculated and fixed at the beginning of the loan term. The PMI amount Changes based on how much you pay down (seemed linear calc to me based on percent down payment - going to 0 at 20% down). However, how many months of PMI you pay does not change!

So even if you pre-pay and have your LTV driven below 80% - you are not going to get out of PMI before it's predetermined schedule!!

Confusing? Tell me!!

Well, puddonhead, FHA loans now require PMI for the life of the loan, regardless of LTV. I think that was sharpie130's point. Sharpie misunderstood, or assumed, (perhaps) that the OP was looking at a FHA loan because of the 3% down payment mention.

jaytrader said:   Well, puddonhead, FHA loans now require PMI for the life of the loan, regardless of LTV. I think that was sharpie130's point. Sharpie misunderstood, or assumed, (perhaps) that the OP was looking at a FHA loan because of the 3% down payment mention.
  This is news to me, but I'm no means an expert; Just a home owner about 6yrs in, with PMI attached to my loan. Several lenders advertise on the radio their plans to refi to get you out of PMI; It's hard to imagine all of these ads Target conventional loans only.

Here's one such blurb from their FAQ:How can I avoid paying Private Mortgage Insurance (PMI) on my mortgage?If your home loan is over 80% of your home value your loan may require PMI.  On FHA loans you may qualify for no monthly PMI if you get a 15 FHA loan at less than 90% of the home value.  Texaslending.com has many loan programs to help with an 80% first lien along with a second lien to avoid PMI. For some loan programs PMI is unavoidable. Please consult with one of our loan consultants for greater detail. 
 

You can change from FHA to conventional in a refi. But FHI MIP is life of loan( refi=new loan) . But OP mentioned 3% not 3.5% which is the FHA min. I believe some FNMA first time buyer programs allow 3% down.

I am not sure if this is common but I had a mortgage with Wells that required me wait 2 year before I could apply for PMI removal.

sharpie130 said:   Unless something is new, PMI no longer comes off FHA loans anymore even below the 20+ percent threshold. On a conventional loan, it would come off...just not FHA
  
This is just for newer loans, though, right?  Pre-existing FHA loans still follow their original terms.  It has only been in effect for a couple of years now, so still plenty of folks that could have existing FHA loans where they can get rid of their PMI... but the earlier rules required 5 years of PMI.

Dus10 said:   
sharpie130 said:   Unless something is new, PMI no longer comes off FHA loans anymore even below the 20+ percent threshold. On a conventional loan, it would come off...just not FHA
  
This is just for newer loans, though, right?  Pre-existing FHA loans still follow their original terms.  It has only been in effect for a couple of years now, so still plenty of folks that could have existing FHA loans where they can get rid of their PMI... but the earlier rules required 5 years of PMI.

  That is true.  The life of loan MIP only applies to loans originated after that rule went into effect.  No change to loans originated prior.



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