Will mortgage payment decrease when pmi is dropped off???

Question

I bought a foreclosed home for under its value. I got almost 20% of equity in it already. Would they take this in to consideration since pmi is considered LTV?

Answer 1

No.  The LTV will be calculated on your ORIGINAL purchase price.  It doesn't matter what the market value of the property was...if it was worth more, it would have sold for more.

That means you have to PAY DOWN to 80% of the original purchase price in order to get PMI dropped.  Banks do not consider the market value of the home for the purposes of dropping PMI, after the loan has been originated...that is why you don't need a new appraisal b/c one isn't needed.

PMI isn't as easy to drop as some loan officers and homeowers think it is, and it used to make me cringe for them to explain in error, that it is.

So, unless you have some extra cash laying around, refinancing is the way to drop PMI in your case.

Answer 2

Your purchase price determines your home's value.  If you put less than 80% down on the purchase price, you will have mortgage insurance for a while.

Often in your note it will spell out the minimum period of time before the lender will consider not requiring it any more.  I've heard some speculation that a minimum of 2 years would have to pass and you would need an appraisal verifying that values had returned.  Another way to speed up the process would be to overpay on your principal to get you past the 80% point of your purchase price.  But ultimately, you should be able to make that payment go away.  It is why I prefer mortgage insurance to a piggyback second.  That loan always had to be paid back.