Profile picture for LJS3414

How is PMI calculated if you buy a foreclosure and have instant equity?

I am currently looking at a house that is valued somewhere around $300K.  The house is a foreclosure and I offered the bank $265K for the house.  Assuming they accept the offer, I am also going to put down $25K on the house.  So the loan I am requesting would be valued at $240K (paying for closing cost out of pocket too, but that is separate).  My question is does the bank calculate PMI based on the appraised value of $300K, or does it base it off the purchase price of the house of $265K?

Second, if it is the purchase price, is there a way to get it appraised sooner (in a couple years) to get rid of PMI?

Finally (sorry for so many questions), how long does a foreclosure offer take to accept?

The area is actually Howard County MD near Jessup/Ellicott City/Columbia.

Thanks!
  • June 22 2010 - Columbia
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Answers (6)

Best Answer

Depending on your circumstances you should be able to qualify for an 80/10/10 loan thus avoiding PMI altogether. 

Generally, a foreclosure is faster than a short sale approval, but could still take a while depending on the bank and company handling the sale.
  • June 22 2010
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PMI is "Private Mortgage Insurance" which is a policy taken out by the lender (paid for by you) to protect them from loss when there's no "safety" margin in their equity position ...

PMI kicks in when you're over 80% loan to value - Doing an 80/10/10 as previously suggested is an alternative but then you have (assuming 10% is downpayment) two mortgages, two payments, two different interest rates etc..

PMI is now tax deductible and could provide a nice tax break at the end of the year also, if the home is truly worth 300k plus, wait a year or so, get it re appraised and if you'reat 80% or below, request the bank drop the PMI

It's fairly simple once you sit down and crunch the numbers

Ed
  • July 15 2010
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foreclosure offers and how long it takes them to be answered depends on many things, the mood of the asset manager for the bank, the bank, the listing agent, and your agent bugging them! 


Sometimes i get answers to my clients offers in a couple days, and I have seen it take a month.  You just never know. 
  • June 22 2010
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Profile picture for wetdawgs
The sales price is the automatic value of the house, so you don't get instant equity on the basis of a $300 k appraised value.

How long does it take to accept a foreclosure offer?  I've heard of some offers being accepted in days, some in months and some in more than a year.



  • June 22 2010
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The loan is always based on the contract price or the appraised value, whichever is lower.  Most MI companies require you to keep the mortgage insurance for 24 months.  If the loan is in good standing, you can appraise your home and request the mi to be dropped.  The loan must be in good standing. 

  • June 22 2010
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Hey LJS,

The lenders I am working with all go off of the sales price, and most have a time period you must wait to be able to get a new appraisal to claim that extra equity to release the PMI.  Of course if its a FHA loan with MI you wait the 5 years no matter what.
  • June 22 2010
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