Question about Appraisal, Down Payment, and PMI

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Submitted by mike92104 on November 1, 2010 - 10:21am

I'm in escrow on a house that I'm putting 10% down on. Our offer was 260,000. The loan would be 234,000. The appraisal came it at 275,000. My question is whether the PMI would be based on the purchase price or the appraisal. I ask because if I did my math right, the LTV would be 85% if it was based on the appraisal.

Mike

Submitted by SD Transplant on November 1, 2010 - 11:43am.

BUMP....timely post, I'd like to know that as well.

Submitted by permabear on November 1, 2010 - 2:18pm.

Whatever the recorded purchase price is (assuming you're in CA). This is from Prop 13.

http://www.caltax.org/research/prop13/pr...

Submitted by Effective Demand on November 2, 2010 - 12:21am.

It would be the purchase price in this case. It's really the lenders choice but the more conservative and correct choice is taking the lower of the purchase price or the appraisal value as far as a risk mitigation strategy so that is the one they chose. This prevents a poor appraisal or a crazy high offer from increasing the lenders risk.

Permabear, prop 13 has nothing to do with private mortgage insurance.

Submitted by DataAgent on November 2, 2010 - 6:42am.

To avoid PMI completely in a conforming mortgage, you'll need 20% equity of the purchase price.

Submitted by jpinpb on November 2, 2010 - 10:01am.

To add to the question. You've bought the property w/the lower down payment and the property is purchased at a price below comps in the area. Say you fixed it up w/the granite and SS. Can you later re-appraise it, since the value is higher, and hence adjust the PMI?

I remember back in the day when I did have my house another lifetime ago, that after some time, the values increased and I was able to not pay PMI. Would like to know who decides and how it gets done/adjusted so as to not pay it.

Would re-financing the loan w/a new appraisal allow you to show the 20% equity/value? I mean, if there are comps in the area that are higher and the acquired property was purchased below the comps and you've improved the property, it would seem to me that somewhere along the way you would be able to show there is 20% equity.

I mean, we are seeing flippers sell above what they purchased w/their granitization. If there's value, does it only get taken into consideration when selling and buying? It seems that you would still be able to claim the equity if you have upgraded the place and other places in the area are selling higher. I just don't know if appraisals will do it or if maybe re-financing will do it.

Anyone have info in this regard?

Submitted by FormerSanDiegan on November 2, 2010 - 10:12am.

If you refinance and the loan-to-value is less than 80%, based on the appraisal at the time of refinance, then you would not have to pay PMI.

If you keep the existing loan there are usually pre-defined points where PMI is automatically removed. This should be disclosed in the paperwork. Usually it's when the loan value is scheduled to reach the point where it falls to 80% of the original appraisal or purchase price. This usually is conditioned on some number of consecutive payments (no lates or missed payments).

As for bringing in an external appraisal and demonstrating that your existing loan is below 80% LTV based ona new appraisal ... this usually requires cooperation from the lender and may also be spelled out in the loan documents.

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