Hi!! My husband and I bought a brand new home. It was completely finished the day we closed on the house. (spec home) However, the contractor that builds the homes in our subdivision recently increased the prices. We paid $135,000 for the house and land. Now to get this same exact home and the same size lot it will cost the buyer $25,000 more than what we paid. We were told the reasoning for this is because land went up in price and the lumber. Will this affect our equity in our newly purchased home. I talked to some relatives and they tried to convince me that the new prices does not have any affect on the home we just purchased. However, i disagreed with them. What are your thoughts?
Yes it will. New houses being built in East Austin are adding value to 50 year old junkers and builders are driving up lot costs and values until the bubble burst again. If the land in your area is increasing in value yours will too. If it cost more to build your house that may affect the value of yours too. Keep in mind too that replacement costs are but one of three methods used to appraise property. Resales of exactually the same vintage home may weigh more heavly in determining the value of you house. The income approach probably would not even be considered
Thanks Ted for all your help. My husband and I are pretty new at this. Any advice would be great. Also another question. We did a 30 yr conventional mortgage with 5% down. Therefore, we are paying pmi. The reason for this is that we had our other home wasnt sold when we bought this one. We plan on putting $300 extra a month towards the principle so we can get it paid off in 15 yrs. Since, the homes went up in price this year …should we have the home reappraised in the future to see if we are able to drop the pmi? Any thoughts would be great!!
I believe the magic number is 80% LTV if my memory is correct. It would be worthwhile if you plan on keeping the house for several years which right now sounds like you will be there 15 years +. The appraisal fees are around $350 these days and you would compare that to the PMI savings per year. I am just guessing a 3 year savings would equal the cost of the appraisal. That would be a better return than current cd rates but if you could buy another house with that cash you may have a better return. I bought one for $200 bucks down that paid me $30,000 in 5 years. It was a sub2 that i sold back to the guy I bought it from and he gave ne $15,000 cash and a vacant lot I sold for another $15,000 and a second lot I still have that I am not trying to sell for $10,000. You can not do this with every $200 house deal or else I would be a zillionaire. Hope all this rambling helps a bit
I just wanted to give ya an update. Recently had the home appraised. We paid $135,000 for it and it is now $166,000. Also, we are in the process of the finishing the basement. Homes in our subdivision w/ the basements finished are selling for around $180,000. ;D
in order to get rid of PMI you have to consult your lender what the required LTVis . Most of the time it is NOT 80% like it was at purchase. Many times it is 70% or even 65%. It does not seem fair and probably should be illegal, but that the way it is. I have gotten rid of PMI on two different properties by waiting for appreciation. Paying it down is doing it the hard way but some people like to do this and take comfort in having a lot of equity in their homes.
if it appraises for more than 20% you can refinance the loan to remove PMI. if so, you need to calculate whether the cost of refinancing will
save you money over just paying pmi.
since rate are up, you probably end up with a worse rate. Sure you can do $0 refi, but the rate goes up about 1/2%.
A few more details, about PMI.
Typically, You need to either have made “substantial imrpovement” to the property or had 2 years of one time payments. Finsihing the basement probably will not count(but you could ask)and since your home is brand new.
So I guess you are about $125 in PMI per mn so that about $3k in two years. If you pay all refi cost (vs $0), its about the same, but again rates are up.
The first step is send a letter to the mortgage comapny requesting their terms for PMI removal. You must do this writing. Otherwise, they will send you a form and them you have send the form back and then they will send you the terms. They do a really good job of making it a big hassle and take as much time as possible.
If you are committed to the 15 ye pay-off then refi as a 15 yr since the rate might be better or about equal than the 30 yr you got when you bought.
There is no easy answer; you are going to have to spend money to save money.
another thing to think about is refinancing to pull some money out to pay off your other debt. when i first refinanced to remove PMI i was able to pull out another 20k to pay off my car and credit card debt.
i paid about 2k to refinance but it was worth it for me.
Thanks for the tips. Is refinancing usually the only way to drop PMI? When we closed on our home last year the mortgage broker told us since the value had went up at closing that after 2 years of payments that we should be able to get it dropped. As long as the home was at 80% LTV. However, she didn’t say how this can be done.
This is what information we have:
If you have a good payment history, you may request cancellation of your PMI on or after the date the principal balance of your loan:
Is first scheduled to reach 80% of the original value of the property (80% LTV).
Actually reaches 80% of the original value of the property.
Other considerations for approval of a cancellation request may include:
Evidence the value of the property securing the mortgage has not declined below the original value.
Certification that there are no other liens against the property.
You can also keep from paying PMI by taking out a second mortgage for the amount remaining above the 80%…
I had a house with what the lender called an 80/15 – I had a first mortgage of 80%, a second mortgage (with a little higher rate) for 15% and paid 5% out of pocket.
PMI is money down a dry well – benefits no one except the lender and is not evn tax deductable.
again…after you close, the rules for canceling PMI thru the bank varies. My must contact them for the specific terms, but in general what your agent says is correct. Howver, the LTV amt. is what varies. Also, if you loan is sold, the new servicing bank can change the rules again.
If you refi, then the 80 LTV applies and you can get a 2nd mortage for the amt. above (if needed)
Isn’t there a federal law (homeowners protection) that requires lenders to automatically cancel PMI once your loan is paid down to 78% of the value as long as the loan is current? Not that it wouldn’t be better to try and have it removed before that, but I didn’t realize that lenders could set their own rules about PMI any longer.
yes, missmbb, you are correct if pay down the loan. This does not apply to situations where the property increases in value and you have it re-appraised. That’s why people re-fi since it “reset” to the 80% as mandated by law.
Not to rant too much, much PMI is a bunch of garbage since they are already price the loan based on LTV on the 1st anyways. You are basically being double -charged for having a low down payment. PMI is an outdate concept based on ledning rules from 20 yrs. ago One on several areas of serious need of reform (in my opinion).