Eliminating PMI (private mortgage insurance)

According to my friend Jay Vorhees at JVM Lending, there are three options for eliminating the private mortgage insurance (PMI) obligation associated with a conventional loan plan. We go over his three options below, with a little input from yours truly:

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Option #1: Refinancing

If your property appreciates to the point where we can garner a new appraisal to support a value high enough to reduce your loan-to-value (LTV) ratio to 80 percent or less, you can refinance into a new loan with no PMI. This assumes, of course, that rates remain favorable. Keep in mind that most appraisers will correlate to the purchase price for the first six months, making it wise to wait at least this long to start the refinance process.

Option #2: Paying down

You can eliminate PMI by paying your loan down if you notify your servicer with your request, have a good payment history, and are willing to prove to the servicer that your property has not depreciated with an appraisal in some cases. This can help you pay down your loan to an amount equal to 80 percent of the original purchase price.

Option #3: Proving home

If your loan is owned or backed by Fannie Mae or Freddie Mac, you can eliminate PMI by notifying your servicer with your request, as long as your loan has seasoned for two years with a good payment history. You’d also have to provide a current appraisal with high enough value to support a 75 percent LTV. If your loan is more than five years old, your LTV can be 80 percent. If you prove your home has appreciated to the point where the LTV is at 75 percent or less, you can eliminate PMI this way.

As rates increase, the option of refinancing becomes less feasible. There are currently loans called 80/10/10 or 80/15/5 where you take a HELOC (home equity line of credit). The buyer puts down 10 or 15 percent and the HELOC covers the balance and there is no PMI. The only issue is the HELOC has higher rates that tend to move with the market. They work well if one gets abonus or is expecting a pay increase and the HELOC can be paid off quickly. Always speak to your lender about the various options. I know from experience if you work with JVM, you are in good hands!

JVM Lending: If appraisal comes in low…

…a buyer is not overpaying! Appraisals and market value can be a tricky math problem for buyers to figure out, but that’s why my friend Jay Vorhees from JVM Lending has put together this handy-dandy blog to explain. Take a look below:

When Appraised Value Does Not Equal Market Value

We have a buyer who was convinced she was “overpaying” for her property because her appraisal came in low. But, there were multiple offers for her property that were very close in price to hers, and there are nearby pending sales that are also similar in price. The entire issue has to do with appraisal guidelines. We repeat this often in this blog because the issue comes up so often: appraised value often does not equal market value.

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If there are multiple buyers willing to pay $850,000 for a property in an open market, then that property’s market value is $850,000. But, appraisers cannot appraise properties (in most cases) above the highest closed comparable sale in the neighborhood. So, if there are no closed sales above $800,000, that property will usually not appraise for over $800,000.

But, again, that does not mean the above property is not “worth” $850,000. Once this was explained to our buyer, she was no longer concerned about her low appraisal. This is something every buyer needs to understand in a fast-appreciating market where contract prices are tough to support in an appraisal.

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This is something I deal with constantly with my own clients. Jay hits the nail on the head here: appraisals may come in lower than expected, but it is not equal to a diminishing value on the property. For more helpful information like this, give me a call! I can talk about real estate all day 😉