Monday, June 16, 2014

Home Equity

According to Zillow, we are FINALLY out from underwater on the mortgage! Yes, I know Zillow isn't the end-all-be-all of things, but it at least gives a snapshot to go off of.  Per Zillow, our house is valued at 189k, and our mortgage is 180k.  WOOOO HOOOO!!!!

In 2008 when the housing market burst, our house went from a value of 223k, to 145k.  EEK.  It has been a long, slow climb back into the positive range.  I check Zillow periodically and this is the first time it showed this number.  My last check was about 2 months ago, and it was at 176k.

No, we aren't moving.  No, we are not trying to take equity out of the house.

But we do have PMI that we so lovingly pay $133 a month toward.  In January 2016, the PMI will drop off, as we will have reached our 5 year max.  And the plan all along had been to apply the PMI payments toward debt repayment. However, if the value of house is more than 20% of the total loan, we can apply to have the PMI removed.  From what I have read, FHA loans (which we have) sometimes require a 22% Loan to Value, but once you reach 22%, they HAVE to remove the PMI.

Of course this number is constantly moving since the value of the mortgage is going down (even a tiny bit) with each payment.  But we are looking at the value of the house being between 215k-219 before any of this is possible.

My research has shown that we would need an appraisal (roughly $400 the last time we had one), but the lender has to be the one to pick the appraiser.  That seems a little sneaky to me.  I have read that there are appraiser that will do a "consult" for a small fee to at least let you know if you are in the ballpark. No sense in spending $400 in appraisal fees (which is 3 months of PMI) to have it rejected by the lender and to find out that the house isn't worth what we are hoping.

Let's pretend that January 2015 we hit all our target numbers (whatever those are).  That is 12 months of PMI savings.

12 x $133 = $1596 minus assumed appraisal cost of $400 = $1196

That is $1196 that we will have extra per year for debt repayment!!  There are too many variables to know exactly where that will be applied....most likely the credit card.  This is going on the assumption that G-man's car will be paid off by then (or very close).  The next debt on the list is the CC, so there ya go.  Rough number show that it would shave off about 8 months of CC payments if the entire amount went there.

All of this is speculative.  I have no idea for sure what the process is with our lender (currently BOA owns the mortgage) to remove PMI, but when we get into the ball park (ex, Zillow has the house at 212k, and we need 216k, based on our current mortgage), we will start the process.  I plan to call this week just to find out what the process actually is so I am prepared.

I would love to shave a year off of the PMI.  If it is anything less than 6 months, we will have to see if it is worth it.  If the appraisal ends up costing us what we would have paid anyway...then we are at net zero.  

Anyone ever do this?  How did it go?


  1. I remember first time I read about PMI... yeah, what a nightmare. I'm glad you guys are close to being rid of it. Having that money towards debt, or even towards the total house payment would be a lot better than as extra insurance you don't really need. Hope the calls yield good results!

  2. I bought my house last year with a FHA loan (before they changed the rules). My understanding from talking with the bank is you have to pay it for a minimum of 5 years. After you reached the 5 years and you have paid off 20% of the original appraised value you can request it to be dropped otherwise at 22% paid off it will drop off automatically. From the way the bank explained it to me the value of my house going up doesn't mean I can drop PMI but that's just my understanding and I could be wrong. Best to talk to your mortgage lender. Good luck and let us know what you find out. I can't wait to get rid of mine.

    1. We hit 5 years of PMI in January 2016. When we did the refi in 2011, we were told 5 years OR 80% LTV. The more I am reading....the more I am getting concerned that wasn't accurate. Again...that is why I need to call. If it turns out we were told incorrect information, I am going to be upset. We pay $133 (down from $136 originally) a month just in case we default. We have NEVER been late on even one mortgage payment in owning the house for 13 years.

  3. I was told 5 years and 80% LTV based off my purchase price of the house. I tried finding some more info online but it's confusing because some websites are contradicting themselves. I think the problem is there are different rules for a conventional loan vs a FHA loan. I know for sure you can re appraise and drop PMI for a conventional loan. Not sure on the FHA. When I asked, the loan officer never mentioned getting a new appraisal but I also didn't specifically ask. It would be great if that's the case because then I can get rid of PMI sooner than later.

  4. We have around $50,000 in equity but still have $30,000 to pay down to get rid of PMI. I wish PMI was based on appraisal value. The market here is crazy, as soon as houses hit the market they sell in a day or two, we were looking to upgrade to a bigger house but you can't even look, Realtor is usually like sorry, house is already pending sale..

    1. If the PMI ends up being based on the appraised value when we originated the loan, then we would have another 30k to go....sick. I would love a bigger house, but that isn't in the cards at all.

    2. our PMI is based on what we owe :/ I think they know they can make more money that way


  5. I emailed chase who holds my mortgage and this was their response (I put x's for my actual numbers but the did calculate what I still owe)
    The Department of Housing and Urban Development (HUD)
    cancels the Mortgage Insurance Premium (MIP) payment on
    Federal Housing Administration (FHA) mortgages with the
    following criteria:
    - Loan originated on, or after, January 1, 2001.
    - MIP paid for a minimum of 5 years (with loan length
    greater than 15 years).
    - No 30-day delinquencies in the last 12 months.
    - 78% or less Loan-to-Value (LTV) ratio based on the lower
    of the sales price or appraised value at origination.
    We apologize, but we are unable to remove the MIP from
    your mortgage loan at this time as your LTV ratio is at
    95.7% and your principal balance is $xxxxx.
    You may request for a waiver if your account meets all the
    criteria above and your principal balance is at
    The LTV is the percentage of the property's value that is
    still outstanding. It is determined by the principle
    balance divided by the property value. The property value
    is the original appraisal value or sales price or
    whichever is lower.
    We apologize but new appraisals are not considered.

    1. Thanks for sharing. That is very disheartening. However...If we do gain equity, we may consider a refi under a conventional loan. Maybe a 25 year so we don't lose time. Thanks again!

  6. Hi,
    Actually you can only cancel PMI once you have vested min 20% equity in your house:
    You don't have to wait for the automatic cancellation at 22%. You can write to the insurance company and ask them to cancel your PMI coverage as soon as you hit 20% equity. And that's total equity, not just paid equity: If your house has increased in value then you suddenly own a lot more of it, and you can cancel your PMI even earlier. For example, let's say you put $5,000 down on a $100,000 home, and in a couple of years the value shoots up to $119,000 because it's a hot real estate market. You own the $5000 you put into the house, plus the $19,000 it increased, for a total of $24,000. (You also own the equity you built from making mortgage payments, but because of how mortgage interest works, most of your payments for the first few years goes to interest and not principal, so we'll ignore paid equity for our example.) So the $24,000 you own divided by the $119,000 value of the home means you own over 20% of your home. So you don't need PMI any more. But to cancel the PMI you'll need to convince the lender that your home is really worth $119,000 now, so you'll have to pay for an appraisal which might run $400 or so.

    1. I think what Kay stated is for FHA loans...and you are referring to conventional loans. I thought along your lines of information...but I am finding that FHA seems to have a different set of rules.

  7. We had to pay PMI on our first house because we only put 10% down, but with our current house we put down 20% so no PMI this time around. But your post got me thinking. We just refinanced last year & was so happy our monthly payment went down as much as it did. I remember the lender asking if we were interested in a home equity loan. I said no, as my focus was on refi. But I just checked out Zillow - which I've heard of but never visited - & it says our house is worth $213,000. Not much more than we paid for it ($195,000) but we've been here 12 years. I think our mortgage balance is about $135,00. Oooooooo that would be a nice chunk of money!!! Somenody stop me LOL