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Question about PMI
Posted on 1/20/20 at 8:56 pm
Posted on 1/20/20 at 8:56 pm
Lets say I purchased some land valued at $50,000 which I paid off in cash at closing. Then turned around and built a house on that land, lets say the house cost $300,000.
Would the value of the land be considered towards 20% requirement needed to avoid PMI?
In this hypothetical I would only need to pay an additional $10,000 to reach the pivotal 20% equity.
Am I correct in this assumption?
Would the value of the land be considered towards 20% requirement needed to avoid PMI?
In this hypothetical I would only need to pay an additional $10,000 to reach the pivotal 20% equity.
Am I correct in this assumption?
Posted on 1/20/20 at 9:08 pm to SidewalkDawg
I'm getting $20,000.
50k (land) + 300k (house) = 350k (total value at completion)
350k * 20% (equity) = $70k
70k - 50k = 20k
50k (land) + 300k (house) = 350k (total value at completion)
350k * 20% (equity) = $70k
70k - 50k = 20k
Posted on 1/20/20 at 9:11 pm to UpstairsComputer
quote:
I'm getting $20,000.
Ok this is a part I wasn't sure about.
So the PMI is based on the total assessed value? Even though the land was already paid off. I thought it would have been based on the value of the loan amount.
Posted on 1/20/20 at 9:17 pm to SidewalkDawg
Assuming you are building a house which in that case would be off the value of the property including the lot
Posted on 1/20/20 at 9:18 pm to SidewalkDawg
I pretty sure it's total. They can't repossess the house without the land. It's been about 7 years for me though...
Posted on 1/20/20 at 9:31 pm to SidewalkDawg
Does the value of the land and the home equal to your outlay of $350k?
Posted on 1/20/20 at 9:35 pm to wickowick
quote:
Does the value of the land and the home equal to your outlay of $350k?
The land was purchased and paid off at $50,000. The home is being built on that land at a total value of $300,000.
When everything is finished. Assessed value of total property is $350,000.
Bank is only loaning $300,000.
Posted on 1/20/20 at 9:48 pm to SidewalkDawg
If you are borrowing 300k you need the total house land etc to appraise for 375 to reach 20% equity to avoid PMI
Posted on 1/20/20 at 9:55 pm to Tigerpaw123
if you’re building don’t you need a construction loan which is 20% down anyway?
Posted on 1/20/20 at 10:04 pm to CE Tiger
quote:
if you’re building don’t you need a construction loan which is 20% down anyway?
My understanding is that land can be used as down payment on construction loans.
Which is why I'm wondering if the land would be enough to meet the 20% requirement or if it's total assessed value (which most here seem to indicate that it is)
This post was edited on 1/20/20 at 10:05 pm
Posted on 1/20/20 at 10:06 pm to SidewalkDawg
Find a bank that will do a construction loan on the appraised value. The appraiser will take your proposed budget, plans, & specs and appraise your lot as if the house was built. They will base your loan to value on the appraised amount, not on the construction cost + lot cost.
Also to someone else’s reply for a construction do you need to have 20% the answer is no. I know of some banks that will go 95% all the way to $850k.
If you are building in Texas I can help you out with some names. If it’s in another state just ask or research who has the best 1x close programs. Usually it’s the mid size banks.
Also to someone else’s reply for a construction do you need to have 20% the answer is no. I know of some banks that will go 95% all the way to $850k.
If you are building in Texas I can help you out with some names. If it’s in another state just ask or research who has the best 1x close programs. Usually it’s the mid size banks.
Posted on 1/21/20 at 11:06 am to SidewalkDawg
quote:
The land was purchased and paid off at $50,000. The home is being built on that land at a total value of $300,000.
The home is being built at a COST of $300K, not value.
quote:
When everything is finished. Assessed value of total property is $350,000.
The assessed value (tax) is irrelevant. All that maters is the appraisal in regards to your LTV being at 80/20 to avoid paying PMI.
Once the house is completed or very near completed your lender will order an appraisal to determine its value. What you paid for the lot and/or to have the home built really doesn’t come into play. It’s all about the final appraised value as that is what the bank will be securing (via a mortgage) to loan you money.
This post was edited on 1/21/20 at 11:07 am
Posted on 1/21/20 at 12:24 pm to MikeBRLA
quote:
The assessed value (tax) is irrelevant. All that maters is the appraisal in regards to your LTV being at 80/20 to avoid paying PMI. Once the house is completed or very near completed your lender will order an appraisal to determine its value. What you paid for the lot and/or to have the home built really doesn’t come into play. It’s all about the final appraised value as that is what the bank will be securing (via a mortgage) to loan you money.
This is a 2x close. Don't do this if you can avoid it. Go find a bank that has a 1x close program. The appraisal is upfront. Instead of having to qualify 12 months later when the house is built you do everything up front. You avoid paying closing costs twice this way. As well as the chance that the housing market in your area tanks and you have to bring more cash to the bank to get the LTV you desire. This way you know upfront before the build.
Posted on 1/21/20 at 12:55 pm to SidewalkDawg
quote:
When everything is finished. Assessed value of total property is $350,000.
quote:
Bank is only loaning $300,000.
Assuming the whole property (house and land) is appraised to be $350,000, then you need to have 20% of the appraised amount in equity in order to avoid PMI.
The "theory" behind the requirement of PMI is the lender will not get full value of a repossessed house in auction. likely they will get 80% of the value. and in your case the value of the property is $350,000
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