PMI Question -- Ed Garcia? - Posted by Dave T

Posted by Dave T on December 21, 1999 at 18:54:38:


Thanks for the prompt response. To answer your questions, I live in SC. The property in question is located in MD. I bought the property with the intent to use it as an investment rental. Does investment use change the equity ratio before PMI will be waived?

Even though my original plan was to hold for rental income, that is now my alternate plan. Retail prices for idential units in the same development range from $86000-$89900 over the last 15 months with recent sales bringing the higher prices. I now will retail the property through a realtor for 60 days at a list price of $87900. During days 61 through 90, the realtor will continue to market the property but at the same time, I will use a property management service to secure a tenant. Both the realtor and the property manager know that during the month of March, they are in a 30-day “race” – the winner being the first to bring me an acceptable tenant or buyer. From day 91 forward, the property will be exclusively marketed as a rental. I do have an unconditional release in my listing agreement that voids the agreement after day 60 if I obtain a tenant before I get a buyer.

If I don’t get a buyer, I will wait a year or so then again attempt to retail the property when the tenant gives 60 days notice. In the meantime, with a tenant in place, the property will generate about $200 monthly cash flow.

Dave Toelkes

PMI Question – Ed Garcia? - Posted by Dave T

Posted by Dave T on December 21, 1999 at 10:01:41:

I just closed on a foreclosure property. Purchase price is $49000 and I got 90% financing from Countrywide Home Loans. The as-is appraisal (ordered by the lender) came in at $63000. In my mind the $44100 loan amount is already less than 80% of the appraised value.

The lender is telling me that since I am financing 90% of the purchase price, I have to pay Private Mortgage Insurance (PMI) despite my equity position. They also say that I must pay PMI for twelve months before I can apply to have the PMI waived (and even then a new appraisal will be needed).

Wasn’t a new law passed this year that requires lenders to waive PMI when the borrower has at least 20% equity in the property? Now, a $19/month PMI is not going to break my bank, but if I have any grounds to get it waived, I would like to make the attempt.

Can anyone give me serious ammunition?

Re: PMI Question – Ed Garcia? - Posted by Ed Garcia

Posted by Ed Garcia on December 21, 1999 at 10:57:42:


Most mortgage companies, will lend the borrower, in your case 90% of the purchase
price or the appraised value, WHICH IS EVER LOWER.

The lenders attitude is, if it’s worth $63,000, then why are you buying it for $44,100.

Once they have determined the value, in your case they have decided to use $44,100.,
because it is lower than the appraised value.

They then would make the loan per their underwriting guidelines.

If they made the loan for 90% of the purchase price ? It would require PMI…

The law your in reference too, allows you to release your PMI, after a reasonable period
of time, if you can show the value has increased with an accepted appraisal.

Countrywide has already told you that period of time is 12 months.

So in the future when purchasing a property, keep in mind that lenders lend against the
purchase price or the appraised value WHICH IS EVER LOWER.

Dave, there are equity lenders that will lend against the higher figure. But then they will
want to go a lower LTV.

For example in your case if the lender accepted your appraised value of $63,000. They
may lend 65 to 70% of that value. 65% would be $40,950.
70% would $44,100. So with an equity lender you could almost do 100% financing.
The problem would be the cost.

Dave, you never told us where you are? Or if this deal is owner occupied, or none owner
occupied ?

If you have any more questions, fell free to call me at (909) 944-0199 and I’d be glad to help you.

Ed Garcia