Options to remove PMI

[JLee]

I bought a house a few years ago, then moved across the country and rented it out to friends/family.  It's paying for itself well enough, but I want to get out of PMI.  The bank insists on using the loan amount as the original value ($10k under appraised value), so I am $15,954.62 shy of the required 78% LTV, instead of $8,154.62 where I feel like I should be).

My options are to either pay ahead $16k (which I don't really want to do on a 3.75% mortgage), or pay $350 (appraisal) or $105 (BPO) and see if the house comes in at $168k to meet the requirement of 75% LTV. 

The easiest and cheapest option is to get a BPO...but they say I have to be available within two weeks for an in-person inspection.  I've since moved across the country and I'm not sure if the bank will become annoyed if they find out it's no longer my primary residence (though a cursory internet search says they won't care as long as I am making the mortgage payments)...my brother lives there now, so I'm sure I could get someone to meet the agent, but it won't be me.

Any thoughts? Do you think they'd care if I have a tenant meet the agent?

[Gr8ful]

I would pay for the BPO.  If it comes in at 78% LTV or less then you are able to remove PMI.  If it come in above 78% LTV you can always pay the difference, assuming it makes sense, or sit with that value until you pay it down enough to the banks "new" value. 

You are fine renting out the property.  When you purchased the home you signed something saying you intended to occupy the property.  You did when you purchased it...things have changed, the bank will not be concerned with it.

The Realtor will schedule anyone that you give as the contact, so your tenant will be fine.  I would make sure that whoever is there for the inspection has a list of any upgrades that tey may not be able to see...new heater in xxxx, remodeled in xxxx, larger x than most neighbors.  Make it easy for them to see the positives and hopefully give you a better valuation.

Good luck.

[merula]

Are you sure the bank will accept a BPO? When I refinanced to get out of PMI (and away from US Bank), I needed a full appraisal.

Another option: if you have a friend in real estate, see if they can run the same sort of analysis as the BPO but for free ahead of time, so you can get an idea of how likely you are to meet the LTV. I'm in the process of buying a house and my realtor is running these on every house I'm thinking of putting an offer on, so I can't imagine they're actually that expensive. Online valuation sites like Zillow could also help here.

You might also want to see how long your bank will consider the appraisal or BPO valid. What if you're three mortgage payments away from the 75%? Can you call back in three months, or would they demand a new one?

[JLee]

Are you sure the bank will accept a BPO? When I refinanced to get out of PMI (and away from US Bank), I needed a full appraisal.

Another option: if you have a friend in real estate, see if they can run the same sort of analysis as the BPO but for free ahead of time, so you can get an idea of how likely you are to meet the LTV. I'm in the process of buying a house and my realtor is running these on every house I'm thinking of putting an offer on, so I can't imagine they're actually that expensive. Online valuation sites like Zillow could also help here.

You might also want to see how long your bank will consider the appraisal or BPO valid. What if you're three mortgage payments away from the 75%? Can you call back in three months, or would they demand a new one?

The bank sent me a letter advising of my options, which included BPO.  I am very likely to meet the LTV, but I could also make up the difference with cash if need be. That is an excellent point, though - I'll have to ask how long the BPO will remain valid.

[Mr.GrowingMustache]

I went trough this with a BPO. It left me with a sour taste.

I bought my house in 2009 for $220k, and made extra payments to get to the 80% where I can request the PMI removal. At 80% the bank requires a BPO and it cost me $100. So I did it, and the BPO came and looked at my house, took a few pics and the whole process took maybe 10min. Than the asshole BPO calls me a few days later telling me that he thought it was appraisal not a BPO and asked me for what improvements I've made (new floors trough out, new kitchen, new bathroom). He comes in with an evaluation of $185k... really underpriced considering my improvements, and the excellent condition of the house. I estimate, worst case scenario it came at $205k

Here is the trick part. I got to 78% ltv (on the purchase price) so I would t have to deal with the BPO again, and was expecting an automatic removal of the PMI. Reaching the 78% from the original LTV does NOT remove your PMI, the PMI gets removed at the date is has been scheduled in your original loan. If your current appraisal/BPO is less than your LTV you are screwed. I'm my case major screwed because I did not due diligence.

The takeaway:
- Expect the BPO to undervalue your house than what you expect. They seem to side on the bank side.
- if the BPO undervalues your house, you get to dispute the evaluation. They will send you documentation, and you basically have to do what the BPO did. Find two or three similar houses in your neighborhood and show what they have sold for. My BPO basically matched my house in terms of bedrooms and bathrooms, garage, square footage but did not account for circular driveway, renovations, vinyl/stone siding)
- 80% of current house LTV removes your PMI right now with a BPO.
- 78% of original before the PMI due date LTV does not remove it.
- The bank needs to do a BPO Assesment, if you are to remove the PMI before it's due date.

I think this PMI is complete BS, I wish I was able to avoid it.

[JLee]

I went trough this with a BPO. It left me with a sour taste.

I bought my house in 2009 for $220k, and made extra payments to get to the 80% where I can request the PMI removal. At 80% the bank requires a BPO and it cost me $100. So I did it, and the BPO came and looked at my house, took a few pics and the whole process took maybe 10min. Than the asshole BPO calls me a few days later telling me that he thought it was appraisal not a BPO and asked me for what improvements I've made (new floors trough out, new kitchen, new bathroom). He comes in with an evaluation of $185k... really underpriced considering my improvements, and the excellent condition of the house. I estimate, worst case scenario it came at $205k

Here is the trick part. I got to 78% ltv (on the purchase price) so I would t have to deal with the BPO again, and was expecting an automatic removal of the PMI. Reaching the 78% from the original LTV does NOT remove your PMI, the PMI gets removed at the date is has been scheduled in your original loan. If your current appraisal/BPO is less than your LTV you are screwed. I'm my case major screwed because I did not due diligence.

The takeaway:
- Expect the BPO to undervalue your house than what you expect. They seem to side on the bank side.
- if the BPO undervalues your house, you get to dispute the evaluation. They will send you documentation, and you basically have to do what the BPO did. Find two or three similar houses in your neighborhood and show what they have sold for. My BPO basically matched my house in terms of bedrooms and bathrooms, garage, square footage but did not account for circular driveway, renovations, vinyl/stone siding)
- 80% of current house LTV removes your PMI right now with a BPO.
- 78% of original before the PMI due date LTV does not remove it.
- The bank needs to do a BPO Assesment, if you are to remove the PMI before it's due date.

I think this PMI is complete BS, I wish I was able to avoid it.

Ugh, that sounds incredibly frustrating.  I bought my house for $140k in February 2013 (it appraised at $150k) and Zillow is currently reporting $183,683.  I would need it to come in at $166,872.83 to drop PMI now, because they require 75% LTV. :(

I'm also really annoyed that they are using my purchase price as my LTV calculation instead of the appraisal, because if they used the appraisal instead I'd only be ~$5k away from dropping PMI and I'd just pay it down.

[Mr.GrowingMustache]

Yes it is frustraiting, and that does suck that they didn't use your appraisal. The banks are about making money so no remorse.

Here is my recommendation. Get a realistic appraisal from a real estate agent. If the real estate agen appraisal is favorable and you think it will get you to a good LTV, than go ahead and schedule a BPO appraisal. If the BPO comes less than the apraisal, than contest it and when they send you the paperwork you can use the real estate agent apraisal.


I didn't contest the BPO because I will be selling soon so I don't have any real experience at that stage and beyond. Just make sure that you CAN contest the BPO Assesment, and that the Real Estate agent lists very similar properties compared to your house! Get the BPO contest form ahead of time if you can.  Make sure the bed, bath, square footage, property size matches very closely. There are also other rules that I am not aware of so make sure to do your homework and see how the BPO asses and what counts/doesn't.

You could also be lucky and BPO goes well and you are good to go :)

Good luck!