PMI Questions/203 FHA loan
Hello BP!
I am considering using a 203 FHA loan. I'm looking to put as little down as possible.
If we buy a property below market value- meaning it already has equity (For example, if I buy a property at 80k but it is worth or appraised at 100k and I put down 3.5%) would I still be required to pay PMI?
Is PMI determined based on loan to value? Or the down payment towards purchase price?
Any information would be great! Thanks in advance.
Most Popular Reply
Private Mortgage Insurance (PMI) is for conventional loans for loans under 20% equity. Once you hit 20% equity you can request to have the PMI removed without refinancing.
FHA uses Mortgage Insurance Premium (MIP) The difference is that FHA charges an upfront MIP at closing as well as monthly payments for the life of the loan. Only way to remove it is to refinance out of the FHA loan.
Regardless of the appraisal, if you put down less than 20% you will likely be charged mortgage insurance. Lenders base loan underwriting and PMI / MIP on the lesser of the purchase price or the appraised value. So, if the appraisal comes in high, they will base it on the lower purchase price. If the appraisal comes in lower than the purchase price they will base it on the appraisal.