Apprailal found to be worth more than I paid. Can I get rid of PMI?
I recently bought a 2 unit apartment building I will be living in. I asked my broker for the appraisal yesterday, I remembered I never actually saw it. The property was found to have a value of 280,000. We only put 10% down on 256,900, so 25,690. Our monthly payment now includes PMI of $75. I'm wondering since the building was found to be worth 23,100 more than what we bought it for, should I then be able to write a check for a few thousand on principle to get us to the 20% equity mark and get rid of the PMI?
My broker is telling me, "Unfortunately Fannie Mae and Freddie Mac do not do the math that way. You can pay down the 10%, wait until the home appraises for the 23k more AFTER a 6-9 month seasoning period and then REFI and loose the MI."
I just spoke to the bank today and they said They would look at the lower of two numbers, Market Value and Appraisal Value. They also said it's hard for them to get the MI off until a few months pass. Just looking for some perspective.
How about going to a different bank and seeing if they can use your high appraisal or will do one on their own.
Zachary- I recommend you find the PMI disclosure in your closing docs. It will say that you have to wait at least 2 years and have 78% equity in order to request PMI removal. The other way is to refinance if you can get the same or lower rate without closing fees (no cost loan). There is a seasoning period on refinancing as you noted so it all depends on where rates are at. What is your rate?
Lenders use the lower of the appraised amount and purchase contract price with the reasoning being that it's worth what you pay for it. You can probably refinance to another lender faster than you will find the current lender willing to give you credit for the higher appraisal amount. If your working with a direct lender he has no other lender to send you to and that may be the problem.
Zach,
What your lender is telling you is true based on my experience. The MI is based on the purchase price. Typically after 12 months you can have a formal appraisal (not a brokers estimate of value, aka BPO, CMA, etc...). At that point you can contact your lender and request the MI be removed (assuming it appraises high enough). Hope this helps.
Curt Darragh
Associate Broker
Houlihan Lawrence
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