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80-10-10 or PMI and New Appraisal afterward

Considering a home at 400k and doing an 80-10-10 or 10% down and PMI.  The home is bank owned and tax value is over 600k.  Comps are showing average sales of $130 a sq.ft. which would put this home at well over 450k.  Can I go the PMI route and then pay for another appraisal after we move in?  Then if the home appraises at or above 450k, can I get out of paying the PMI at that time?
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November 14 2010 - North Raleigh
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No, expect to pay MI for 24 months.

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November 14 2010
I wouldn't expect the appraisal from the bank to reflect a higher value because once you purchase the home for $400k, then you set a "new" comp for the area.  In other words, you become one of those comps you're currently viewing.  Depending on your situation, then I'd suggest looking at your options of the 80-10-10, if it's available, and a loan with PMI.  You may want to view your income tax to see if you can deduct the PMI, which may help you with making an educated decision.  If you're in a tax bracket that won't allow you to deduct PMI, then look into paying for your MI upfront (no, not FHA), which costs approximately 2%.  This can be paid as Loan Discount Points or through a higher interest rate (similar to the No Point process), which will allow you to fully deduct your PMI via Interest or through Points; and best of all, you will save thousands of dollars through the life of the loan.  Typically, your break-even point will be within 3 years.  Good luck.
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November 15 2010
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Mike, thanks for all the information!  Very helpful.
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November 15 2010
I concur with Mike; remember that the price you pay for it becomes the new market value of the home for a period not less than 12 months. Some lenders may view the loan "seasoned" after 12 months but i can assure you that the PMI companies will not. Better off taking the 80/10/10 and avoiding PMI altogether!
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November 15 2010
 
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