get rid of PMI before closing date --> a law???

[zerocookie]

What is the name of your state? California

Hi , we bought a new house from a developer in April 2005. Purchase price 500 K. Down 10%. Fixed rate 30 years. In April we knew that we would have to pay PMI. House currently under construction. Closing date --> november 24, 2005..Appraisal ordered by the lender on September 9, 2005 (which is a company affiliated with the developer) shows that before the closing date, the equity in this new house we have not even moved in yet is already more than 20% !!!!!! Is the lender required by law to drop or in this case not even ask us to pay the PMI ? This is apparently not covered in the "Homeowner's Protection Act" of 1999 ? I need to know if there is a law for this kind of situation. thank you.

 

[Samm1970]

No they are not. The lender will use the lesser of the appraised value or the purchase price to determine loan-to-value. Have you considered 80/10/10 financing? That's a first mortgage for 80% (thus no PMI), 2nd mortgage for 10% and a 10% down payment.

The rate will be higher on your 2nd mortgage. But, the interest is tax deductible. PMI is not.

Also by doing it this way, you may also be in conforming loan territory and get a better rate on your first mortgage, since your first mortgage will be $400,000. The confofming loan limit is increasing to $400,000.00. Hasn't taken place yet, but many lenders are offering the higher conforming loan limit prior to it taking effect.

Talk these options over with your lender.

 

[zerocookie]

Hi Sam,

thank you. Yes we considered the 80/10/10, but after calculating the tax implications,the better rate on the first loan, etc..We came out with the conclusion that actually getting a 90/10 and PAYING the PMI was going to be a better deal--> because we were betting on the increase in value of houses in California. We estimated that the increase in house value would allow us to reach the 20% equity thus allow us to drop the PMI after 1 year (of course with a written request to the lender along with a new appraisal). PMI is about $180 a month. Dropping this would exceed the tax advantage of having a 80/10/10.
The problem--> our estimation in increase of house value was conservative !!! The increase in house value already allow us to get rid of the PMI before we have even moved in the house (house market is crazy in Southern California-Ventura County). All the articles I have about dropping the PMI talk about dropping the PMI after YEARS AND YEARS of payments. There were obviously written for financing issues in not "so crazy" markets...I thing that buying a house in Ventura or Santa Barbara counties in Southern California (for example) is not the same as buying a house in another less desirable State.

 

[Samm1970]

The only problem with your calculation is the lender is going to require you to pay PMI for at least 2 years. They'll be considering your value 2 years from now. Are you confident the value will be sustaineable? There's lot's of talk about bursting bubbles especially in areas like CALIFORNIA, Florida and the Northeast corridor.

That said, depending on what area you're from, $500,000 is at or just above median price so you may not have to worry much. If your in the tops of your market, I'd consider this more seriously.