Paying off PMI or refinance or Appraisal

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Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Paying off PMI or refinance or Appraisal

Post by Ecorp » Wed Mar 28, 2018 9:09 pm

Hello,

I have a few options I'm trying to figure out what the best route is. Hoping someone can give me some guidance.

Bought our first house for 285k. Appraised a 310k Loan for 270k. Loan is 5/5 at 2.85%

We are paying PMi at 120 month. I could make a payment of about 19k to get under 80% LTV. This would be 1/3 of my savings. PMI will automatically drop in 2021

Or I could have the house reappraised and if it appraises at 330k it would be dropped automatically. However the house wss never updated since built in 95. We have had one full bathroom completely redone. But we have the master bathroom completely ripped out. A good friend who does kitchens and bathrooms for a living will be renovating in. So parts of the house are "being renovated' which I don't know how an appraiser considers. If even the old bathroom was still in there I believe it would easily appraise for the 330. Most in the neighborhood have been selling 350-380.

And lastly since we are in the 5/5 arm at 2.85 it will adjust in July 2019. I can do a rate adjustment this summer which will lock me in for another 5 years . It's currently 3.875. Or I can look into 30 yr fixed refinance?

Sorry for the story. I guess I'm looking at what would be my best route ? Should I try to get rid of PMI,make payment or use money towards renovations and reappraise. But then I'm paying PMi till that is done?

runner3081
Posts: 1618
Joined: Mon Aug 22, 2016 3:22 pm

Re: Paying off PMI or refinance or Appraisal

Post by runner3081 » Wed Mar 28, 2018 10:57 pm

Make sure to double and triple check the rules in your mortgage about dropping PMI before doing anything.

sc9182
Posts: 214
Joined: Wed Aug 17, 2016 7:43 pm

Re: Paying off PMI or refinance or Appraisal

Post by sc9182 » Wed Mar 28, 2018 11:30 pm

Re-appraise after work has been done, not when torn.
Do inform appraiser (if not automated one), about the updates you've done, any nee/recent items put in the house (water heater, A.C., or carpets, or new microwave etc; yard updated/landscaping or sprinkler system; LED lights, energy efficiency updates or Windows, roof/fence, or backyard work stc.). Appraiser may not necessarily act like they care about these updates, but most of them do indirectly care about the upkeep you are doing to keep/bring house to better condition. Hence, better/higher appraisal (also you can contest it if it's much below it's market value; then remind bank about the updates and upgrades you've spent on).

while at it, you might want to request removal of escrow., if that's of any use to you.

5/5 may also have 2% cap on first reset. So, your ARM-Reset impact could be limited for next 5 years term. 30-year is enticing, but if you have sufficient income and savings- you can possibly get-away with your current ARM, especially with removal of PMI.

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Thu Mar 29, 2018 9:29 am

runner3081 wrote:
Wed Mar 28, 2018 10:57 pm
Make sure to double and triple check the rules in your mortgage about dropping PMI before doing anything.
yes, all these numbers came from the bank

JonSnow
Posts: 10
Joined: Mon Jan 28, 2013 11:27 pm

Re: Paying off PMI or refinance or Appraisal

Post by JonSnow » Thu Mar 29, 2018 9:54 am

I recently went thru the same thing regarding my PMI. I just paid the bank whatever it took to get rid of the PMI.

I didn't want to be forced to do any renovations or have the appraisal come back and not hitting the value I wanted ( the appraisal would cost $400 ). I simply called the bank, asked them how much, then made the payment. I figure I would get the money back eventually when I sell and also save a little bit of money with interest. Win win. You can search my post history if you want to read the thread.

Good luck!

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Fri Mar 30, 2018 7:34 am

I figure I'll pay around 4k in PMI till in drops automatically(2021)
Also the problem with renovations is I need them done before any kind of refinance because they will probably require appraisal too.

TropikThunder
Posts: 1021
Joined: Sun Apr 03, 2016 5:41 pm

Re: Paying off PMI or refinance or Appraisal

Post by TropikThunder » Fri Mar 30, 2018 7:24 pm

Ecorp wrote:
Thu Mar 29, 2018 9:29 am
runner3081 wrote:
Wed Mar 28, 2018 10:57 pm
Make sure to double and triple check the rules in your mortgage about dropping PMI before doing anything.
yes, all these numbers came from the bank
runner3081 isn't referring to just the numbers for PMI, but the rules for getting it dropped. For example, my mortgage has to be held for 2 years with PMI before it can be removed, regardless of how much I've paid or how much the house has appreciated since loan origination. There are also requirements for number of on-time payments, late fees, delinquencies etc. The point is to not just pay a chunk of money and then find PMI has to stay for some other reason.

renner
Posts: 9
Joined: Sat Jan 20, 2018 2:25 pm

Re: Paying off PMI or refinance or Appraisal

Post by renner » Fri Mar 30, 2018 7:44 pm

TropikThunder wrote:
Fri Mar 30, 2018 7:24 pm
Ecorp wrote:
Thu Mar 29, 2018 9:29 am
runner3081 wrote:
Wed Mar 28, 2018 10:57 pm
Make sure to double and triple check the rules in your mortgage about dropping PMI before doing anything.
yes, all these numbers came from the bank
runner3081 isn't referring to just the numbers for PMI, but the rules for getting it dropped. For example, my mortgage has to be held for 2 years with PMI before it can be removed, regardless of how much I've paid or how much the house has appreciated since loan origination. There are also requirements for number of on-time payments, late fees, delinquencies etc. The point is to not just pay a chunk of money and then find PMI has to stay for some other reason.
+1 mortgages with pmi may have different rules about when and how you can drop pmi, and you need to meet both/all of them.

FWIW, do you have the option of brokers price opinion, alternative to a formal appraisal? The former is usually cheaper. Just a real estate agent or the sort drives around without entering your home.

So make sure you know all the rules and options.

TropikThunder
Posts: 1021
Joined: Sun Apr 03, 2016 5:41 pm

Re: Paying off PMI or refinance or Appraisal

Post by TropikThunder » Fri Mar 30, 2018 8:43 pm

Ecorp wrote:
Wed Mar 28, 2018 9:09 pm
We are paying PMi at 120 month. I could make a payment of about 19k to get under 80% LTV. This would be 1/3 of my savings. PMI will automatically drop in 2021

And lastly since we are in the 5/5 arm at 2.85 it will adjust in July 2019. I can do a rate adjustment this summer which will lock me in for another 5 years . It's currently 3.875. Or I can look into 30 yr fixed refinance?
If my calendar skills are correct, you took out the loan in July 2014 (based on the 5/5 adjusting in July 2019)? I ask because the rules are different regarding the target LTV depending on whether you're using the original value or the current value (at least for Fannie Mae, if your loan is Freddie Mac or still held by a different lender, this may be different).

There are three ways PMI can be removed per Fannie Mae:
  • 1. Automatically, on the date the LTV is scheduled to drop to 78% based on the original amortization schedule. This ignores any extra payments you've made or any changes to market value (in fact, assessing current value is not required for the automatic removal). If your payment history is satisfactory, PMI is removed for the payment following the month you hit 78%.
  • 2. By request of the borrower, based on the original value of the home (generally the lesser of the purchase price or the appraised price at purchase). In this case, the LTV must be at 80% or lower (including as a result of extra payments) and your payment history must be satisfactory. In addition, (unlike the automatic method), the lender is required to verify that the current value has not declined below the original value, based on an appraisal or Broker Price Opinion (BPO). This what your lump sum payment would achieve.
  • 3. By request of the borrower, based on the current value of the home based on a new appraisal (full appraisal, not just a BPO), taking into consideration improvements and market appreciation. In this case, the LTV target depends on how old the loan is.
    • For loans less than 2 years, the LTV must be 75% or less, and in this case, improvements count but market appreciation does not.
    • For loans between 2 and 5 years, the LTV must be 75% or less, and in this case, improvements and market appreciation both count.
    • For loans greater than 5 years, the LTV must be below 80%.

    This is what your improvements would achieve, but again the target LTV is dependent on how long you've had the loan ("seasoning").
https://www.fanniemae.com/content/guide ... 20Property

So if you got the loan in July 2014, you would need to get to 75% LTV based on improvements and market appreciation (<5 years). This makes the "lump sum" vs "improvements" decision more complicated.

mariezzz
Posts: 202
Joined: Mon Oct 02, 2017 11:02 pm

Re: Paying off PMI or refinance or Appraisal

Post by mariezzz » Sat Mar 31, 2018 1:08 am

+1. The key word is scheduled. As stated, paying your loan down early does not oblige the lender to drop PMI. I went through this with my mortgage - part of the problem is there are various documents out there for homeowners, published by the government, which misstate the terms required to get PMI dropped (including one from HUD I had).

I refinanced. But there, your appraisal needs to be such that you'll end up with enough equity to not need PMI, or you need to have the ability to pay more up front so PMI isn't required.

Be aware that on refinances, there may be incentives for banks (mine was a small, local bank) to not want your home to get a high appraisal. Mine was low-balled by the bank's appraiser. I then worked with AimLoan and got a significantly higher appraisal. I talked to the first appraiser - he was comparing my house to homes in a nearby neighborhood with significantly lower values, and he refused to change the comparisons. The second appraiser did not do that.

xerxes101
Posts: 61
Joined: Sat Oct 14, 2017 11:25 am

Re: Paying off PMI or refinance or Appraisal

Post by xerxes101 » Sat Mar 31, 2018 3:24 am

(1) I would pay down the mortgage and get rid of the PMI. If that taps into your emergency saving money, you can open a HELOC if it is free of charge just to have the peace of mind in case you need the money. My credit Union did that for me free of charge and they did a "drive by" appraisal which did not cost me anything.

(2) How long are you planning to stay in this house? If you have no plans to move out of this house, I would get a 15 year fixed rate mortgage. Your monthly payments will be higher, but you will save on interest significantly over the term of the mortgage.

Good luck

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Sat Mar 31, 2018 6:05 am

TropikThunder wrote:
Fri Mar 30, 2018 8:43 pm
Ecorp wrote:
Wed Mar 28, 2018 9:09 pm
We are paying PMi at 120 month. I could make a payment of about 19k to get under 80% LTV. This would be 1/3 of my savings. PMI will automatically drop in 2021

And lastly since we are in the 5/5 arm at 2.85 it will adjust in July 2019. I can do a rate adjustment this summer which will lock me in for another 5 years . It's currently 3.875. Or I can look into 30 yr fixed refinance?
If my calendar skills are correct, you took out the loan in July 2014 (based on the 5/5 adjusting in July 2019)? I ask because the rules are different regarding the target LTV depending on whether you're using the original value or the current value (at least for Fannie Mae, if your loan is Freddie Mac or still held by a different lender, this may be different).

There are three ways PMI can be removed per Fannie Mae:
  • 1. Automatically, on the date the LTV is scheduled to drop to 78% based on the original amortization schedule. This ignores any extra payments you've made or any changes to market value (in fact, assessing current value is not required for the automatic removal). If your payment history is satisfactory, PMI is removed for the payment following the month you hit 78%.
  • 2. By request of the borrower, based on the original value of the home (generally the lesser of the purchase price or the appraised price at purchase). In this case, the LTV must be at 80% or lower (including as a result of extra payments) and your payment history must be satisfactory. In addition, (unlike the automatic method), the lender is required to verify that the current value has not declined below the original value, based on an appraisal or Broker Price Opinion (BPO). This what your lump sum payment would achieve.
  • 3. By request of the borrower, based on the current value of the home based on a new appraisal (full appraisal, not just a BPO), taking into consideration improvements and market appreciation. In this case, the LTV target depends on how old the loan is.
    • For loans less than 2 years, the LTV must be 75% or less, and in this case, improvements count but market appreciation does not.
    • For loans between 2 and 5 years, the LTV must be 75% or less, and in this case, improvements and market appreciation both count.
    • For loans greater than 5 years, the LTV must be below 80%.

    This is what your improvements would achieve, but again the target LTV is dependent on how long you've had the loan ("seasoning").
https://www.fanniemae.com/content/guide ... 20Property

So if you got the loan in July 2014, you would need to get to 75% LTV based on improvements and market appreciation (<5 years). This makes the "lump sum" vs "improvements" decision more complicated.
I apologize for not being more specific in original post. Yes loan in July 2014. All these numbers are from the Penfed on how to drop PMI. Paying 20k gets me to 75%LTV. They confirmed it automatically drops in 2021. And they sent me a form to drop PMI with a new appraisal if it hit 330k. Next door neighbor just sold his house in one day for full asking at 390k(100 more sqft and one more bedroom). Almost wish I left dated bathroom. I think it would hit 330k easily.

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Sat Mar 31, 2018 6:16 am

renner wrote:
Fri Mar 30, 2018 7:44 pm
TropikThunder wrote:
Fri Mar 30, 2018 7:24 pm
Ecorp wrote:
Thu Mar 29, 2018 9:29 am
runner3081 wrote:
Wed Mar 28, 2018 10:57 pm
Make sure to double and triple check the rules in your mortgage about dropping PMI before doing anything.
yes, all these numbers came from the bank
runner3081 isn't referring to just the numbers for PMI, but the rules for getting it dropped. For example, my mortgage has to be held for 2 years with PMI before it can be removed, regardless of how much I've paid or how much the house has appreciated since loan origination. There are also requirements for number of on-time payments, late fees, delinquencies etc. The point is to not just pay a chunk of money and then find PMI has to stay for some other reason.
+1 mortgages with pmi may have different rules about when and how you can drop pmi, and you need to meet both/all of them.

FWIW, do you have the option of brokers price opinion, alternative to a formal appraisal? The former is usually cheaper. Just a real estate agent or the sort drives around without entering your home.

So make sure you know all the rules and options.
I asked this or if they could use tax assessment(334k). But they require a full appraisal

lakpr
Posts: 275
Joined: Fri Mar 18, 2011 9:59 am

Re: Paying off PMI or refinance or Appraisal

Post by lakpr » Sat Mar 31, 2018 6:59 am

Ecorp wrote:
Fri Mar 30, 2018 7:34 am
I figure I'll pay around 4k in PMI till in drops automatically(2021)
Also the problem with renovations is I need them done before any kind of refinance because they will probably require appraisal too.
Another way to read this information is that you are getting a return of $4K over a period of 3 years, on an investment of $19K.
That's approximately 7% guaranteed return per year. Tax Free.

If I were you, I would pay it off immediately and get rid of the PMI. There is no investment out there that will give such return.

On the second point, yes refinancing will require an appraisal, so you will need to wait until the renovations are completed before you can start the refinance process. PenFed has a 15-year refinance rate of 3.75%, or a 30-year refinance rate of 4.125% ... but be prepared for the refinance process to drag out to almost 2 months.

ETadvisor
Posts: 228
Joined: Tue Jul 04, 2017 1:37 pm

Re: Paying off PMI or refinance or Appraisal

Post by ETadvisor » Sat Mar 31, 2018 7:38 am

Pay off PMI yesterday. Provides zero benefit to you. Worse than life insurance for kids or mortgage insurance which I would never endorse.

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Sat Mar 31, 2018 5:13 pm

lakpr wrote:
Sat Mar 31, 2018 6:59 am
Ecorp wrote:
Fri Mar 30, 2018 7:34 am
I figure I'll pay around 4k in PMI till in drops automatically(2021)
Also the problem with renovations is I need them done before any kind of refinance because they will probably require appraisal too.
Another way to read this information is that you are getting a return of $4K over a period of 3 years, on an investment of $19K.
That's approximately 7% guaranteed return per year. Tax Free.

If I were you, I would pay it off immediately and get rid of the PMI. There is no investment out there that will give such return.

On the second point, yes refinancing will require an appraisal, so you will need to wait until the renovations are completed before you can start the refinance process. PenFed has a 15-year refinance rate of 3.75%, or a 30-year refinance rate of 4.125% ... but be prepared for the refinance process to drag out to almost 2 months.
Thanks for this I knew there was a way to look at the savings but couldn't figure out the numbers

macheta
Posts: 126
Joined: Sat Nov 29, 2014 12:06 am

Re: Paying off PMI or refinance or Appraisal

Post by macheta » Sat Mar 31, 2018 6:17 pm

With interest rates going up I would try to get out of the 5/5 loan. I'm not an expert though. Three years away to get rid of PMI is not bad. The variable or hidden cost to refinance and fix the house up would cause to many variables for removing three years of PMI payments. Plus you have to meet the PMI removal requirements and you could end up missing one after all the Investments made.

It feels good though once it's gone but I probably would think twice in your situation.

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Sat Mar 31, 2018 10:03 pm

macheta wrote:
Sat Mar 31, 2018 6:17 pm
With interest rates going up I would try to get out of the 5/5 loan. I'm not an expert though. Three years away to get rid of PMI is not bad. The variable or hidden cost to refinance and fix the house up would cause to many variables for removing three years of PMI payments. Plus you have to meet the PMI removal requirements and you could end up missing one after all the Investments made.

It feels good though once it's gone but I probably would think twice in your situation.
Are you saying to keep the extra cash in case of refinance and improvement costs go higher?
I'm not sure what you mean by missing the requirements? They have been stated.

Ecorp
Posts: 49
Joined: Mon Apr 24, 2017 5:21 pm

Re: Paying off PMI or refinance or Appraisal

Post by Ecorp » Mon Apr 16, 2018 3:37 pm

I did confirm with bank a payment of 19,400 will drop PMI after they do a AVM which is instant and uses tax record.PMI would automatically drop in 2/22. So that's approximately $5400 in PMI I would save if I paid the lump sum

Beach
Posts: 132
Joined: Tue Jan 10, 2017 5:48 pm

Re: Paying off PMI or refinance or Appraisal

Post by Beach » Mon Apr 16, 2018 4:09 pm

Ecorp wrote:
Mon Apr 16, 2018 3:37 pm
I did confirm with bank a payment of 19,400 will drop PMI after they do a AVM which is instant and uses tax record.PMI would automatically drop in 2/22. So that's approximately $5400 in PMI I would save if I paid the lump sum
Nobody can make the decision based on how much that will dip into your savings and what safety net you wish to maintain, but $5400 is alot of money being flushed down the toilet. I'd get rid of it.

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