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FHA MIP - What value is used for LTV - Origianl Sales price or current appraised value?

I have a question on the FHA annual MIP.  My refi was done before the new FHA MIP rules.  So I understand these MIP payments won't go away until at least 5 years.  Then if my LTV is 78% or less my MIP can go away.  My question is what is the exact calculation to determine the 78% LTV?  Is it based on the original purchase price/appraisal value or is it whatever the appraised value is at the time I am looking to get rid of the MIP?

So for example – my house sold for $309K.  After five years my home is then appraised at $350k.  Which value does FHA use to determine the LTV?

I see conflicting responses in my web search.  If you are certain of your answer, please share.

Thanks!

  • November 27 2013 - Seattle
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Answers (10)

I'll follow up the solid answers already supplied by Clay and Brookestone with a few points or redundant clarifications;

1) If you did the refinance with an appraisal, then it would be based on that appraisal value, the purchase price or purchase appraised value no longer being relevant.

2) If you did the refinance without an appraisal it would be based on the lower of the original purchase price or appraised value (assuming this isn't a refi of a refi).

3) Lesser know is: If FHA does not have a record of your original appraised value (it happens) then when you did the refi the new LTV was defaulted to 90%.




  • December 09 2013
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Yes, the annual MI is re-adjusted based on the Principal Balance every year. Your Truth in Lending or a schedule of payments doc should reflect that.
  • November 28 2013
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Guys thanks for your clarification.  I was afraid that was the case.  One more question - FHA Annual MIP goes down every year as I pay my balance lower, right?
  • November 28 2013
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MI removal on an FHA loan never uses appreciation/ future value to determine the drop point, your home could appreciate $500,000 in 1 year and the MI would still be charged until you reach 78% and a minimum of 5 years. Inversely, it could also be worth less than the purchase price once you reach 78% and the MI still falls off.
While I agree with the 3 "B",s ( Bryan, Brian, Brookstone) making it 4 "B",s ( Branch ), there is 1 exception. You stated you refinanced before the new FHA MI rules. If the refinance was a no appraisal streamline then the original sales price ( or appraised value if lower ) will be used. If you did a transaction that required an appraisal like Conventional to FHA or a streamline with appraisal, then the 78% drop point is determined by the new appraised value. Your disclosures from Closing should have a schedule of payments showing you each payment for 30 years. It should show the MI payment adjusting lower after every 12 payments, then you will see it is removed once you reach the 78% benchmark.     
  • November 28 2013
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"It is funny, just as I found in my internet search, I am getting different answers."
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That's because there are a lot of "Dougs" running around out there with CMP titles in lieu of knowledge. It's also a good example of how much weight you should put on Zillow reviews.

The Br(i,y)an brothers have it right; Brian with an "I" is more correct because it could be either the original contract price or the original appraised value depending on which is less. If you paid 120K and the appraisal was only for 100K, then it's the 100K that will determine the LTV.
  • November 27 2013
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There's still time to change your answer Doug...
  • November 27 2013
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It is funny, just as I found in my internet search, I am getting different answers.  

Doug, it looks like Bryan and Brian say it is the original purchase price not the current appraisal price.  Are they mistaken?
  • November 27 2013
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Hello,

It will be based on the current value of your home. You will most likely need to get a full appraisal. You can submit that to your loan servicing company (along with a form they most likely have) to petition them to drop the mortgage insurance. It is up to them whether or not they will accept the appraisal you submit. You may want to call to see if they have a preferred appraisal management company or vendor before you shell out the $500. You are correct in that HUD(FHA) will require that you paid mortgage insurance for 5 years from loan closing before this can happen. 

Hope this helps,

Doug
  • November 27 2013
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It would be based on the purchase price in order for the MIP to automatically drop off at 78%.  You are correct that it needs to be a minimum of 5 years after the purchase.

If you think you have the equity prior, you can look into refinancing on through a conventional loan.

Hope this helps,

Bryan
  • November 27 2013
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the lesser of the original sales price or the original appraised value.   You can't just have it reappraised and drop MI based on what the home is worth today.

However, if the current value gives you enough equity to be at 80% LTV, then you could always refi into a conventional loan.
  • November 27 2013
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