Question Details

Alex, Home Buyer in sf bay area

down payment on home less than 20% and results in PMI. if the home was purchased below market or appreciated

Asked by Alex, sf bay area Wed Aug 8, 2007

and then reappraised at a higher value that made the principle less than 80% of the appraised value, is there a way around getting charged PMI? if there are ways of getting around the pmi after the loan has been agreed on, what are they? im no expert so obviously thats the reason why im here.
thanks in advanced.
i am asking this question to see what options ill have when im ready to purchase a home in the event i do not have the 20% down and not considering a 2nd mortgage to make up the difference.

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Answers

7
I agree completely with Jim's response. You have your options when it comes to financing with less than 20% down--20% used to be and still for the most part, still the standard down payment but there are programs out there that allow for and cater to borrowers who leverage themselves a bit more. As Jim mentioned, you have the 80/20 programs which will finance 100% of the purchase price, you have the 80/10/10 programs which finance 90% of the purchase price with a 10% down (or 80/15/5 with a 5% down payment), or you can do single loans to to 90% with a blended rate which is generally a bit higher. The single loans can have PMI payments or it can have the PMI payments built in, resulting in marginally higher interest rates.

Keep in mind that PMI is not that bad anymore. I believe it was in the beginning of this year PMI payments are not allowed to be tax deductible just like your mortgage interest payments. So there is less of a reason to shy away from PMI payments when comparably they will most likely add up to be about the same payment as tacking on a second mortgage. Another option to consider is seller financing if the seller is willing to do so and the lender is willing to accept that type of financing, which most lenders are, as long as the loan falls within guidelines. Best of luck when it's time to find a home!
Web Reference: http://www.simpluxe.com
3 votes Thank Flag Link Wed Aug 8, 2007
Do consider the second mortgage. Sometimes a 80-10-10 (as they are called) results in a better "blended rate" than a 90% loan with PMI. Another type is the NO PMI 90. - Those are loans with slightly higher interest rates but no PMI. Have your LO compare all three side by side to determine what is best for you.
As far as getting PMI dropped after the house has appreciated, lenders are generally not required to do that just because LTV has dropped under 80% due to appreciation. In most cases they are expected to drop PMI if LTV has dropped below 75% if due to repayment of original principal. --
If it is less than 75% due to appreciation and sufficient time has passed since the mortgage was originated. go ahead and ask, it can't hurt.

On the other hand if you "bought it below market" and expect the lender to drop PMI two months later because you made a shrewd deal, expect shrieks of laughter at such an audacious request.
3 votes Thank Flag Link Wed Aug 8, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Hi Alex,

The idea of a second mortgage to cover the 20% is a good idea but these types of loans are becoming difficult to get even with high scores. Mortgage Brokers promise many things but you need to be sure they can deliver.

Be careful about refinancing promises. That is how the lending mess we have today started. There is no telling what the value “will be” as we found out. Many buyers were promised lower rates when they refinanced their homes and now the value is lower than what they owe.

You should try to get pre-approved as soon as you are ready to buy. This will put you in a good position with a Seller. Also get your rate locked. You should be able to modify the loan as long as it is before the closing.

Hope this helps!

George Antonopoulos
Realtor
Shoreline Property Specialist
Coldwell Banker Residential Brokerage
Madison, CT
800.759.6936
Web Reference: http://www.shorelinere.com
2 votes Thank Flag Link Wed Aug 8, 2007
Correction to Ellens post . There was a typo in the following sentence: It should have read NOW allowed instead of NOT allowed : " Keep in mind that PMI is not that bad anymore. I believe it was in the beginning of this year PMI payments are NOW allowed to be tax deductible just like your mortgage interest payments"
1 vote Thank Flag Link Thu Aug 9, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Hi Alex,

I’m pretty sure that when a purchase is made, they focus on the purchase price and not the appraised value. Once you have obtained ownership, re-finance, and the appraised value will now be the focus. Ask your loan officer how soon this can be done.

Melissa Mancini, Realtor, CBR, GRI
Web Reference: http://MelissaBMancini.com
1 vote Thank Flag Link Wed Aug 8, 2007
Once you have equity in the property and the lender verifies it with their appraisal you can request the pmi be dropped. The other solution is an 80/20 loan.
1 vote Thank Flag Link Wed Aug 8, 2007
Pam Winterba…, Real Estate Pro in Danville, VA
MVP'08
Contact
Check with your mortgage company. Usually when the loan reaches 78-77% (just over the 20% required) the pmi comes off automatically. If you don't have the full 20% but get the house below appraisal value or if you are in an area that your equity will grow rapidly, discuss with your mtg co. ahead of time what rules and policies are to have pmi removed. Some will let you prove you have 20% equity in the home after 1 year, but usually it is a 2 year minimum. Good luck! Carrie
Web Reference: http://carriecrowell.com
0 votes Thank Flag Link Wed Aug 8, 2007
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