I had this grand idea of buying, for example a $200,000 appraised duplex for $180,000. Throwing in $20,000 as a downpayment and escaping PMI. I talked to my current lender and he said they can’t use the appraised value on a purchase to avoid PMI (something about Fannie Mae guidelines). This sucks and here are my questions:
Does anyone accept appraised value on a purchase? If so, is it worth it?
If I did a 80/10 loan to avoid the PMI, when can I refinance (where they would use the appraised value) to escape PMI?
why don’t you do a 80/20 split or something similiar to that to avoid MI, or another option you have is to refinance after closing, I have lenders that require NO seasoning refinances up to 90% LTV. You could pull some of that equity out immediately.
Nah, the powers that be tend to frown upon pencil-whipping appraisals on 1003s and other shortcuts. HMDA tightly regulates that stuff, considers it fraud and “corner cutting”. Next, consumers need to be aware that even in scenarios where you “escape” the PMI, you’re still gonna pay out of pocket money regardless each month. Say you do a Fannie Mae “Flex 97” or a similar product where you put only 3% down and supposedly avoid PMI. Unless your credit is like 800+, you’re gonna get whacked a bit on the rate, thereby increasing your monthly payment anyway. Same goes for most piggyback loans. You may have a decent rate on the first, but usually the second carries a rate well over a full percentage point of that of the first mortgage, again, thereby taking money from you monthly. In my experience, the best way to TRULY avoid (or at least, minimize significantly) your PMI is to go FHA. They require a tiny bit more up front on the premium but it can be financed, and also the monthly default insurance premium is nominal. And finally, don’t forget…mortgage interest is tax deductible and PMI expense is not! And also, 10% down on a $250,000.00 mortgage buys you a house that, in today’s market, regionally specific of course, inflates in value within 18 months at which point you order a drive by appraisal certifying the house still exists, and wipe out your PMI. Consumers really need to get their worries off PMI and focus on other matters, like how much is your investment appreicating, not “costing” you monthly!
btw…you may only carry ONE FHA loan and it must be certified as owner occupied, so not the best for owner for absentee rehabbing, but possibly a dynamite scenario if you were to obviously move in, bang some nails and sell it a year later.
I hate banks…they dont make sense to me at all… I was in the same situation…I found a rehabbe house for like $25,000 that needed about $10,000 into it…the APV…would have been about $70,000 (It was a forclosure). But since it was an investment property my local bank wanted 20% down. my freakin payment woulda been about $250 a month. i have good credit, have had several loans through this bank but they were to worried about a high risk…C’mon here…Do you think i am going to ruin good credit over a $250000 house??? I dont think so…But after they denied me the loan (well didnt deny me, but since no down payment) They ended up loaning me $30,000 for another 3 year old used pickup that depreciates instead of appreciates…
I understand the risk banks take, but dont understand their whole thought process…doesnt there have to come a time when they throw the book out and just use common sense???
banks and common sense? That’ll be the day. Those people read off a chart. Thats when you need a “common sense lender” to step in or another investor. Banks only assess from their own scale model, they dont care about anything else. I know a person who went to banks for a mortgage and were turned down for stated income loans because of a 658 avg FICO. The bank needed 660. So you dont get a loan over 2 points of credit, which couldve amounted to $100 here or there of credit to debt. That makes sense.
(1) If I did a 80/10 loan to avoid the PMI, when can I refinance (where they would use the appraised value) to escape PMI?
PMI exists when you are financing over 80% LTV /CLTV. It is called Private Mortgage Insurance and in some states it is becoming illegal as it is an extra cost insuring the lender from your foreclosure. 80/10 is not going to get rid of PMI. Your loan officer is not explaining this correctly.
(2) Does anyone accept appraised value on a purchase? Yes.
Your response that an 80/10 does not eliminate PMI is incorrect. PMI is only charged on the portion of the First Mortgage/Lien loan that is over 80% of the appraised value of the property. That is why Lenders/brokers do an up to 80% first. Then a 10,15,20% second. It keeps the client out of PMI.
The main reason for doing a first and second mortgage is to eliminate PMI.
“Thug” seams to be confused about what PMI is … re-read his original post and it sounds as if he thinks he needs to refinance to get out of PMI…
(1) I had this grand idea of buying, for example a $200,000 appraised duplex for $180,000. Throwing in $20,000 as a downpayment and escaping PMI.
Mark, 20,000 down does not keep you out of PMI here… this is a 90% LTV scenario
(2) I talked to my current lender and he said they can’t use the appraised value on a purchase to avoid PMI
only if he did a first at 80% will you avoid PMI
(3) If I did a 80/10 loan to avoid the PMI, when can I refinance (where they would use the appraised value) to escape PMI?
PMI exists when you are financing over 80% LTV on the first mortgage. right Mark… It is called Private Mortgage Insurance and in some states it is becoming illegal as it is an extra cost insuring the lender from your foreclosure. An 80/10 is going to get rid of PMI. Your loan officer is not explaining this correctly.
I was thinking he was still trying to get in at a straight 90%LTV / CLTV
Conventional lenders never use the appraised value to determine the LTV on a purchase. But on a rate and term refi (no cash out), you can avoid PMI by simply using a FNMA product if your LTV is low based on the appraised value. They don’t require seasoning on this type of refi, meaning that you can own it for < 12 mos and use the appraised value. These are some of the lowest rates you can get, so if you’re going to retain the property, go for it. If you’re going to flip it, don’t worry about it since you’ll spend more in costs than you’ll save on the PMI.
I will give you a break…this time