Unique PMI Situation, what can I do?

Question

Hi all,

I am purchasing a single family home (It was originally a duplex, and is still zoned as a duplex, but the current owner turned it into a SFR). The bank appraised it as a SFR, did my loan as a SFR (5% down), and it is owner occupied. I am planning to turn it back into a duplex, and live in one unit and rent the other. Does anyone know if I get this re-appraised as a duplex in 6 months or so, can the PMI be removed as long as the LTV is 75% or below? Or will I have issues with having the loan called because I changed it into a duplex and that is not what they originally did the loan for?

Thanks for any advice.

-Rob

Julee Felsman · Answer

Hi @Robert Larue! You're more than welcome. I'm super-puzzled by their threat to call your note. I'd ask them to point to the clause you've violated. You're not permitted to damage the property ("lay waste" it usually says... which I find funny for some reason) and you're not permitted to do things that lessen the value... but alterations and improvements are permitted. I'd be interested to hear what they tell you!

Robert Larue · Answer

@Julee Felsman Thank you! Very helpful. I will take a look at this. I asked the loan servicer already and they basically said "we could call your loan" which is why I asked about that as well.. Based on that link- it looks like after 2 years if the LTV is 70% or under you can request cancellation, but they don't have to do it.

Julee Felsman · Answer

Hi @Robert Larue!

Really interesting question, as the MI cancellation rules are different for multi-unit versus SFR.

One of the MI companies with whom I work has a pretty user-friendly resource here, that lays out the rules.https://www.nationalmi.com/wp-content/uploads/2017/03/MI-Cancellation-flyer.pdfIf you want to do some recon, you may want to go read the actual text of the Homeowner Protection Act, which is where these rules live.

But it may be easier to just call your loan servicer and ask.

One thing I can say for sure: your loan will not be called because you converted the property to a duplex. The wildcard is whether they will apply the LTV/rules for SFR or plex.

Cheers!

Julee

Fred Shatzoff · Answer

Ask your loan officer?