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Household Finances

FHA and Mortgage insurance.

17 years ago

Ok, we have an FHA loan and we have to pay 78% loan to value ratio to get rid of our Mortgage insurance. Now, we have paid that IF you look at the value of our house (as it has gone up over the five years we have had the house) We haven't gotten down to 78% IF you look at the price we paid for the house. I called our mortgage bank about getting rid of the MI. The bank is a HUGE provider of mortgages (name brand, I won't mention it here) and it basically now a bunch of idiots who don't seem to know anything. The first woman I talked to said I would have to have MI forever, untill I pay off the entire mortgage.

So, I figure that they don't know much about what they are talking about so I thought I would ask you guys first...

Should the value of my house (being used to determine if I pay MI) be the FIRST appraisal, when I purchased the house OR the new house appraisal!?

They did send me a letter (finally) saying I would have to pay off over 10 grand to get rid of MI, however with my new house value I shouldn't have to do this.

thanks,

Renee

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Comments (4)

steve_o
17 years ago
Check your contract. That will spell out how long you continue to pay MI and under what terms it can be discontinued. Some states have passed laws requiring lenders to initiate the discontinuance of MI when equity reaches 20-22%, but the terms (measured against loan amount, measured against market value) may differ.
PaulaW
17 years ago
According to HUD it is calculated by the original value of the home. We got rid of ours by refinancing - rates had dropped and house values had risen, our new loan was for less than 78% of the value so no MI. Not sure if that works when interest rates aren't going down, you would probably have to crunch your own numbers to see if it makes sense for you.
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FHA can be used by anyone, it's not based on need due to low income. That's a misconception that has unfortunately stigmatized FHA buyers who do not have poor credit, low income, etc. Mortgage insurance on FHA loans is what funds this; it's not tax payer supported and it's not charity. I couldn't find a link that explained that very well but this one may do: http://portal.hud.gov/portal/page?_pageid=33,717441&_dad=portal&_schema=PORTAL None of this is to say I'm enamoured with HUD/FHA. It's just another bloated govt agency IMO, but the FHA has offered some good loan programs. Years ago it was one of the few ways to get a lower down payment. Then along came all the predatory loans that are now resulting in so many foreclosures. HUD/FHA does have criteria to meet, they don't just hand out loans like candy, but I'm sure lower income people do find their lower down payments attractive.
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"There could be a big discrepancy between what is my listed value in the property records of the county and the actual market value." Appraisals for real estate taxes rarely match actual values very well or for very long. Just start calling mortgage brokers and ask them if they have any lenders that do FHA. The brokers do not actually make loans, they find you a lender who makes the loan.
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Is that because it might fall apart during a move? You might hear all kinds of valid reasons for it, but really it is just to prevent mortgage fraud. One of the problem with any movable home is that it can be picked up and moved somewhere else before being paid for. So you can get a mortgage, move the home off the land and essentially leave the bank nothing other than a lot to foreclose on. There was pressure to not make the loans at all, but there were obvious concerns about disallowing them altogether. So they came up with the one placement solution. That solution allows loans on the property while disincentivized moving the homes, as any move after the original placement destroys so much value that it is just not worth it. It is a very elegant solution except for people who place a manufactured home on a parcel that they can't or won't sell. It largely destroys their ability to get any return on the home. I suspect that technology has changed to an extent that there might be other solutions today that would largely achieve the same goal.
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Bruce I agree with your main point, but you mention that federal loan programs are the same everywhere and that point needs clarification. The minimum guidelines to the lenders are the same; however, each lender is allowed to make the guidelines more restrictive (not less) than the federal guidelines. These are called 'lender overlays'. For example, if the min credit score for FHA (or other federal loan program) by federal guidelines is 580 the lender can make their credit score min requirement 640 or any other number as long as the lender treats each borrower for that program the same with the same lender overlays. In other words, its a lender overlay. I run into these all the time and have successfully had buyer(s) close with Lender B with no overlays when Lender A had overlays that eliminated the buyer from approval at that particular lender, These overlays can be and often are geographically regional too. The overlays can be anything as long as it doesn't violate fair housing regulations. I see them frequently in the credit score area and the debt to income ratio areas and loan to value ratios and less frequently in other qualifying guidelines. BTW this includes conventional mortgage guidelines as well.
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davidandkasie
17 years ago
you likely will have to refi to get rid of it, or wait until the principal is less than 78% of original value.
quasifish
17 years ago
I am in a similar boat attempting to remove the MIP from an FHA loan. As a matter of fact, I just dealt with my incompetent mortgage company a few minutes ago and ended up having to write a letter to them because they wouldn't help on the phone.

We are 2 months from our 5 years and owe less than 75% of the original loan value. The idiot I just dealt with at the mortgage company told me we were going to have to pay for an appraisal in order to remove the MIP- I'm steamed but pretty sure she didn't know what she was talking about since we owe less than 75% of what was originally mortgaged, current appraisal value shouldn't play into this at all for us.

At any rate, I'm pretty sure FHA is stuck on the original principal of the loan rather than the market value and would guess that refinancing may be in your best interest depending on when you will get to that magic 78% of original loan value. If you haven't paid extra principal and it will be 2014 before you reach the 78% point, then refinance; OTOH if you've paid additional principal and will be at 78% soon, it may not be worth the refi effort.

Good luck.

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