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02-04-2013 02:05 PM
We bought a great fixer a few months ago and have a PMI of 421/month that I just hate (because we put 10% down). One of our first goals is to get rid of the PMI to lower our payments and we have a few options that I'm hoping someone might know.
- We can try to refinance in a year and with all the upgrades we made to the house we MIGHT get rid of it with our improvements
- Do a big fix like the new kitchen that we are saving for. It would be about 45k and take a home equity line out to fix the kitchen, hopefully raising the appraisal value and getting rid of the the PMI, but making a payment to the home equity instead.
- Save up for the kitchen (pay in cash from our savings) and not have a nest egg but also save an extra 421/month.
Thoughts? I am assuming this is how you would get rid of it besides waiting 6.5 years (for us) before we could get enough equity and it would disapear. Our home loan is at 4.25% and I believe have gone down a bit.
02-04-2013 11:14 PM
Someone I know bought in 2012 and only put down 5%. He hasn't put any money into it, but the bank just called him to tell him he has the opportunity to refinance and also get rid of the PMI since home prices have risen. Maybe this will be the same in your case. I'm just wondering why you didn't just put down 20% if you have all the money to do upgrades, unless I'm missing something. $45k seems like a lot to upgrade a kitchen yet you didn't have the extra 10% to avoid the PMI in the first place. Just curious - unless you knew you wanted to put more into fixing it up than the down payment, but $421 a month is a lot.
02-05-2013 01:52 PM
our house was 550k and we didnt have a second 55k for the 20%, we did still keep a small nest egg and have about 25k right now and its growing. Our plan for the kitchen remodel is 30k, but im sure we will have extras and we want to do a little this or that as we remodel.
Interesting that the bank initiated the call. We just wern't sure if we should save up, redo the kitchen, refi and be 'broke' but saving an extra 450/month or if we should save up 55k, invest it back into the house, have the pmi disapear without the cost of a refi then save again with the extra money we save from no PMI
02-06-2013 11:00 AM
If you only had 10% down and the house hasn't appreciated that much, I don't think you will get a HELOC approved. Most HELOC lenders wants the total LTV of less than 80% or 75% if you want good rates. Another thing you need to consider is that putting $45K into a kitchen may not get you >$45K appreciation in apprasal. In fact from experience, it hardly changes anything if at all. If you already have $30K, why just try a no-cost refi. If your house appreciated just $25K from your purchased price, you will be able to get ride of PMI. With the money you saved, you can work on your kitchen slowly without borrowing more money.
02-07-2013 11:34 AM
I hate PMI with passion, but it is not the only part of the picture. You have to think about property tax and the cost to refi. In your case PMI does appear big and worth refinancing at over $5k annual cost. But if you reappraise, your property tax will go up + you spend $3k refinancing. Your true PMI = Origianal PMI ($421) - increase in after tax property tax + after tax interest rate savings. The numbers may still work out for you, expecially if you have cash readily available. But if not, be careful and calculate the full 6.5 years of costs.
Your #2 plan with remodeling sounds like throughing good money after bad. You you upgrade your kitchen and your appraisal does not increase, you just paid $45k to get rid of $30k (6 years * $5k PMI/annual) expense. Ok, you will enjoy your new kitchen, but again it is money wasted if you otherwised do not need to remodel.
02-07-2013 05:28 PM
In my state CA (probably true elsewhere), loan appraisal and property tax are not related. The former is determined by bank's appraiser and the latter by county tax asssesser. So higher appraisal value doesn't necessarily mean higher taxes. Also my loan agent never charged me for refi, YMMV.
02-08-2013 04:04 PM
Appraisals have nothing to do with property tax valuations. Prop 13 dictates that the basis of property tax is the last sold price plus up to 2% increase per year when values increase.
Improving a home can increase the valuation on the improvement only.
02-25-2013 10:48 AM
Your best bet is to talk to a mortgage professional to really find out your options, and what you actually need to do to remove the PMI.
As for the kitchen, it shocks me that a kitchen for a 550k place would cost 45k.
When we bought, our realtor hooked us up with a local shop that flippers use and we got a whole new kitchen for less than what HD charges just for a simple reface! I would suggest doing the same. You could probably save yourself around 30-45k easily. So then you could do your bathrooms as well. Just a thought.