Can you refi to new higher assessed value and eliminate PMI?

Buying & Selling Real Estate
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Can you refi to new higher assessed value and eliminate PMI?

Luca Mastrangelo
Investor · Cape cod MA · Member since 2015 · 62 posts · 9 votes

Im looking to buy a property in MA that I can live in for the next 2-5 years and then rent when Im done.  

Properties range from 300-400k.  I could put 20% down but will leave little to no room for improvements/work that needs to be done.

My questions is, can I put 5% down on a fannie loan, use my remaining cash to upgrade/rehab the property and refinance in 1-2 years for an increased value, ideally 20% higher and then eliminate PMI based on the new higher assessed value?

Any thoughts? TIA

I 

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
10y

You can get into the loan at the killer PMI premium, even that long I'd suggest 10% down, then after you improve the property and the loan/title is seasoned (2 years is not a problem) you can refi, no cash out basis at 80% without PMI or 75/70 LTV cash out still without PMI. An FHA loan is different with MIP and the premium is charged to the life of the loan, I'm not sure off the top of my head if that is short rated or not in a total refi payoff. But your thought is doable, see your lender for your plan. :)

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  • Jerry Padilla
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    10y

    @Luca Mastrangelo

    Yes.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y

    You can get into the loan at the killer PMI premium, even that long I'd suggest 10% down, then after you improve the property and the loan/title is seasoned (2 years is not a problem) you can refi, no cash out basis at 80% without PMI or 75/70 LTV cash out still without PMI. An FHA loan is different with MIP and the premium is charged to the life of the loan, I'm not sure off the top of my head if that is short rated or not in a total refi payoff. But your thought is doable, see your lender for your plan. :)

    1Reply
  • Aaron MoorePro Member
    Investor / Real Estate Agent · Colorado Springs, CO · Member since 2015 · 82 posts · 31 votes
    10y
    Yes. Make sure you buy with some margin under market to begin with so you aren't stuck if the market flattens. Get your agent to run comps for you in 13 months to see how it's looking (inside of 12 months your original purchase could theoretically be used as a comp against itself)
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  • Luca Mastrangelo
    OP
    Investor · Cape cod MA · Member since 2015 · 62 posts · 9 votes
    10y
    Originally posted by @Bill Gulley:

    You can get into the loan at the killer PMI premium, even that long I'd suggest 10% down, then after you improve the property and the loan/title is seasoned (2 years is not a problem) you can refi, no cash out basis at 80% without PMI or 75/70 LTV cash out still without PMI. An FHA loan is different with MIP and the premium is charged to the life of the loan, I'm not sure off the top of my head if that is short rated or not in a total refi payoff. But your thought is doable, see your lender for your plan. :)

    Property I am interested in is listed at 345. Assessed/Fair Value is 318. Id aim for a sale price of 320. Lets say i put 10% down and take a loan for 288k. When I refi what would it need to assess at for me to eliminate PMI at that point? 360k? Im not sure If it will get that high in 2 years but 340-350 is a reasonable estimate. If i assess lower then I could just pay extra down at that point to make up the difference, 10k if it assessed at 350 in 2 years??

    Sounds like what I am thinking is doable, just want to make sure were talking about the same thing.  

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    10y
    Originally posted by @Luca Mastrangelo:
    Originally posted by @Bill Gulley:

    You can get into the loan at the killer PMI premium, even that long I'd suggest 10% down, then after you improve the property and the loan/title is seasoned (2 years is not a problem) you can refi, no cash out basis at 80% without PMI or 75/70 LTV cash out still without PMI. An FHA loan is different with MIP and the premium is charged to the life of the loan, I'm not sure off the top of my head if that is short rated or not in a total refi payoff. But your thought is doable, see your lender for your plan. :)

    Property I am interested in is listed at 345. Assessed/Fair Value is 318. Id aim for a sale price of 320. Lets say i put 10% down and take a loan for 288k. When I refi what would it need to assess at for me to eliminate PMI at that point? 360k? Im not sure If it will get that high in 2 years but 340-350 is a reasonable estimate. If i assess lower then I could just pay extra down at that point to make up the difference, 10k if it assessed at 350 in 2 years??

    Sounds like what I am thinking is doable, just want to make sure were talking about the same thing.  

    Yes, the place has to "appraise" at 360 to pay off 288 at 80% loan to value. If it doesn't appraise out you can make up the difference to stay at 80% LTV.

    BTW, the valuations are appraised, by an appraiser who provides an appraisal. "Assessment" are tax valuation and are not really the fair market value of a property, in some places they may be close, but they can be much, much lower than the FMV. :)

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  • Luca Mastrangelo
    OP
    Investor · Cape cod MA · Member since 2015 · 62 posts · 9 votes
    10y

    does anyone know what the appraised to assessed value ratio is for Plymouth MA?  From what I gathered on the town  website it sounded like it was what the town though the property would sell for.

    Plymouth Property Values

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  • Robert AdamsBusiness Member
    Real Estate Broker · Henderson, NV · Member since 2009 · 1k+ posts · 373 votes
    10y

    I am doing exactly what you are talking about right now in Vegas.

    I bought a property for $320k which included a $10k credit from seller toward closing costs. I also received a 4% credit for a down payment (in exchange for the 4% credit my rate was slightly higher at 4.75%). This allowed me to buy the property on a Fannie Mae conventional loan with 5% down and I only had to come out of pocket $3800 total.

    I closed on the home January 2015. I rehabbed it and now I am doing a refi to get rid of the MI and lower my rate down to 3.875%. The home just appraised for $400k and my current loan balance is $299k.

    When all said and done my new payment (hopefully closing Monday) will be about $350 less per month at the new rate and no MI. The refi cost will be about $4k. It will take me just under a year to breakeven on the cost of the refi and then I will begin to start saving money after that.

    On a side note: When I originally bought the home I was told by the lender that I could "recast" the loan after I had enough equity for $150 plus appraisal fee and they would remove the MI but my rate would stay the same. Sounded simple and that was my original plan. But then when it came time to do the recast the bank that bought my loan explained the process was not that simple at all and wanted me to jump through all kinds of hoops to do the recast. I decided to save myself the headache and do the complete no cash out refi. Less headache and I get a lower rate as well.

    I hope this is helpful. I am also a broker in MA so please feel free to reach out if I can be of any assistance.

    [email protected]702-349-9175
    The Adams Team at Rothwell Gornt Companies4.970 Reviews
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