Financing in Carmel>Question Details

Sanakr, Home Buyer in Carmel, IN

LTV for a new home

Asked by Sanakr, Carmel, IN Thu Nov 5, 2009

I am buying a new home with 10% down payment. The lender called for an appraisal and it turned out to be 9% more than my purchasing price( I got nice discount :)).
Now, I asked my lender. Should I pay 11% down payment that will make 80% LTV. so that I can avoid PMI. It seems they go with lesser amount between purchas and appraised value.

1. Is it correct?
2. If yes, Can I refinance in 6 months and enjoy the higher appraisal value?

Please help me understand how it works.

Thanks,
Sankar

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John Shellington’s answer
When you purchase, the lender will always use the lesser of sales price or appraised value to determine your LTV. So putting an extra 1% down payment will not eliminate your PMI. In that case the lender would just treat your loan as a 89%LTV which will still need PMI based on a 90% facttor. In 6 months, you would not want to refinance because the cost would be prohibitive and chances are your rate would be higher. Why not prepay some principal early on in your loan? You'll find that the PMI will drop off early. Hope this info answers your question. http://www.johnshellington.com
1 vote Thank Flag Link Fri Nov 6, 2009
The loan to value for your loan will be based on the purchase price or appraised value which ever is the lower amount. You will still need a full 20% down based on your contract price to avoid the PMI. Depending on your market you may refinance and eliminate the PMI if the new appraisal does indeed come in 20% higher than your purchase price. Congratulations on your purchase.
1 vote Thank Flag Link Thu Nov 5, 2009
Kudos to you & your agent who negotiated a great price!

Yes, you can refinance after 6-12 months of "seasoning." At that time, however, you will need to have a new appraisal conducted & you are "at the mercy" of the opinion of THAT appraiser.

And, remember, it is quite expensive to refi, so it might not be worth it for a bit more Cash Out. It might be best to enjoy equity & the security of your home value.
0 votes Thank Flag Link Tue Dec 1, 2009
Have your mortgage broker and CPA review all particulars with you. Without full disclosure of all matters difficult to render and opinion. Take inconsideration your short and long term goals of owning home, amount of difference between two.

Excel spread sheet could assist you compare "apples to apples"

WAY TO GO with 9% discount !

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0 votes Thank Flag Link Thu Nov 5, 2009
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