Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
Good morning,
My question is likely easy to answer , but I myself am unsure about it
Here is an Example:
If you use any type of finance and put down anything Less than 20% down , then you will have PMI attached to you monthly note , yes ?
So an FHA loan , with 3.5% down would definitely have the monthly PMI attached to it
But, what if at the time that you purchase the property, that that property has 20% or greater Equity in It ?
So you buy the property for $80,000 and you put 3.5% down. The Property is worth ( appraisers for ) $100,000 ..... and so by this, there is already 20% of equity in the house .
So would the PMI Automatically be dropped from your note ?
Hope my question makes sense . And I really appreciate the feedback
Lender · Nationwide Lender · Member since 2015 · 1k+ posts · 814 votes
10y
@Michael Dunn FHA loan will always have PMI. If you have more then 10% equity in it, then the PMI will drop off in 11 years.
In general, the purchase loan LTV is based on the lower of the purchase price or appraisal. So if you by a $100K property for $80K, and put $5K down then you will have 6.25% equity only on the purchase loan. You have equity, but it will NOT be recognized for a purchase loan. You can refi after 6 months with a new appraisal to get the benefit of the equity.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
10y
When you buy a property for $80K, its worth $80K for loan purposes. Its very, very unlikely the lender's appraiser will appraiser it at $100K in a situation like this. But even if they did, it would only matter to the extent its higher than than the purchase price. For getting the new loan, $80K is the maximum value the lender will use.
Some loans will drop PMI when the balance falls below some number. Not all will do this. On ones that do, its almost always based on the original value. So, in you $80K, 3.5% down example, you would have to get the loan balance below 80% or $80K or $64K. Some will still require an appraisal, but its to verify the value is at least $80K. Here again, the lender will not use a higher appraisal for calculating LTV
The way to do this faster is to refi. If its truly worth $100K, give it six months or a year (whatever a new lender requires) and refinance using a new appraisal.
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
10y
Upen,
Also wanted to ask you please..... You mentioned that after 6 months , that I could get a new appraisal and get the benefits of the equity
So would this mean .... That if say today I purchased a property for $80,000 , the Appraisal came in at $100,000 ( so $20,000 equity ).
I wait 6 months from today, get a new appraisal , the property still comes in at $100,000 and thus after 6 months , I still have $20,000 in equity , that I can then at this point ( 6 months from today ) , tap into and use that equity
OR
Would I have to have more than 20% of equity in the property , since the Max that most banks will do on a Cash-Out Refi is a 80% LTV ?
So in other words ...... After 6 months , for me to be able to get any money out of the property to use for say a Down payment on a Future property, pay off bills , etc. Then I would need 30% Equity in the property ?
With 30% of Equity and a LTV of 80% ...... This would give me a Cast out amount of $8,000 ( less appraisal and closing costs ) .... This assumes the " New " appraisal came in at $110,000 and with me still owing $80,000 on the property. $110,000 x 80% LTV = $88,000
$88,000 - $80,000 ( Purchase Price ) = $8,000 in cash from the cash-out refi ( less costs for the new appraisal and the Closing Costs )
This brings up one , real quick question ..... Is there any way to NOT have to pay for Closing Costs on a New Appraisal ? This would cost about another $5,000 , which is a huge chunk out of the $8,000 .... basically would make it not even worth doing IMO, yes ?
Upen and other members, Thank you for the help and your time
Real quickly please ...... If I am able to Refinance ( cash out refi ) in 6 months , is there any way to avoid having to pay the Closing Costs ?
It seems to me , that if the Closing Costs for where I live/ the price range of properties I'm looking to purchase , average Closing Costs in the $5,000 range ..... That this can b a substantial amount of the money taken out of the Cash I would be getting from the refi.
Anyway to avoid paying ALL ( r even half ) of the $5,000 for the Closing Costs ?
If you wait 1 year and do he refi,. vs 6 months , would this save any $ ?