Home appraisal to remove PMI - good idea?
May 9, 2018 11:56 AM Subscribe
I bought a house about 3 years ago in the dead of winter and got a good deal on it - the house itself is in very good shape, but the actual landscaping is very much a work in progress. The average house right now is going for +70K over what I paid for mine and I'm wondering if I should get a home appraisal to drop the PMI?
I bought a home about 3 year ago when housing prices were still fairly low and I also bought during the winter so I got an even better deal as the sellers were very motivated. The house structurally is in very good shape, it just needs some updating i.e. new windows, new siding, some updating to paint, bathroom/kitchen remodeling. Nothing critical, just more of the "keeping it modern" type updates to improve curb appeal which personally is a fairly low priority right now.
However, alot of my neighbors have been selling as in the past 5 years, the area I bought in has undergone a major change and is quickly turning into a commuting suburb of Minneapolis (to anyone from the area - I live on the border of Burnsville / Savage in the Savage school district). From watching Zillow, Redfin, Realtor the properties around me are going for about 70K over what I paid for this house and to drop PMI with a new appraisal, I only need to gain 35K. Additionally, I have an oversized lot that is becoming very difficult to find in this area (watching what sold this year, only one lot that was close to mine sold and it sold for ALOT more then I paid but the house was pretty much new).
My question - is it worth it to pay for the appraisal if alot of what I've done is fairly minor in terms of improvement? The main things I've done is replace some electrical, some plumbing, installed some better molding along with repainting two rooms, improved and redid some landscape along with laying sod that never took, installed a few garden bedding, cut down some overgrown trees (to the point that even some neighbors commented that they really like it being open) and repainted the shed along with some general maintenance and installed new windows that were rotted out. The major project for this year is stripping the popcorn ceiling in the main room, repainting the entire upstairs and repairing / restaining both porches.
My main hesitation that while the front looks better, both the front and back still look like crap because of the invasive plants and just a general lack of upkeep. I'm working to repair it but nature likes to take it time it seems and the interior of the house doesn't really look like I did much. Additionally, the appraisal is going to be almost $600 so I really don't want to waste my money if I don't have a good chance to get it removed but again, PMI sucks so I'm torn.
I bought a home about 3 year ago when housing prices were still fairly low and I also bought during the winter so I got an even better deal as the sellers were very motivated. The house structurally is in very good shape, it just needs some updating i.e. new windows, new siding, some updating to paint, bathroom/kitchen remodeling. Nothing critical, just more of the "keeping it modern" type updates to improve curb appeal which personally is a fairly low priority right now.
However, alot of my neighbors have been selling as in the past 5 years, the area I bought in has undergone a major change and is quickly turning into a commuting suburb of Minneapolis (to anyone from the area - I live on the border of Burnsville / Savage in the Savage school district). From watching Zillow, Redfin, Realtor the properties around me are going for about 70K over what I paid for this house and to drop PMI with a new appraisal, I only need to gain 35K. Additionally, I have an oversized lot that is becoming very difficult to find in this area (watching what sold this year, only one lot that was close to mine sold and it sold for ALOT more then I paid but the house was pretty much new).
My question - is it worth it to pay for the appraisal if alot of what I've done is fairly minor in terms of improvement? The main things I've done is replace some electrical, some plumbing, installed some better molding along with repainting two rooms, improved and redid some landscape along with laying sod that never took, installed a few garden bedding, cut down some overgrown trees (to the point that even some neighbors commented that they really like it being open) and repainted the shed along with some general maintenance and installed new windows that were rotted out. The major project for this year is stripping the popcorn ceiling in the main room, repainting the entire upstairs and repairing / restaining both porches.
My main hesitation that while the front looks better, both the front and back still look like crap because of the invasive plants and just a general lack of upkeep. I'm working to repair it but nature likes to take it time it seems and the interior of the house doesn't really look like I did much. Additionally, the appraisal is going to be almost $600 so I really don't want to waste my money if I don't have a good chance to get it removed but again, PMI sucks so I'm torn.
Check and make sure your mortgage actually allows this before you spend the money. I almost did this a couple years in to my loan and then read through the documentation and found out that because it was a specific type of FHA loan it was not possible to remove the PMI except by paying the balance down period the end.
posted by charmedimsure at 12:19 PM on May 9, 2018 [5 favorites]
posted by charmedimsure at 12:19 PM on May 9, 2018 [5 favorites]
The best way not to be burned is to check with your lender to see if it is an option; some have different rules for when they're willing to drop PMI and sometimes they're more strict than others. And as charmedimsure mentioned, not every loan type can have the PMI discharged early. It's a relatively easy phone call to make, and they'll usually be really upfront with you about it.
The great news there is that if it hasn't already, your loan has probably been sold a couple times to different lenders, who all might have different rules around this. Just bide your time until you land on one who has more relaxed rules around it.
If you trust your real estate agent, you could also ask them for the 'comps' in your neighborhood, and that can tell you if you're +$70k in equity you actually have. Depending on where you are, an appraisal can sometimes trigger higher property taxes.
While it sounds like you'd come out ahead, PMI does automatically come to an end and if you're getting close to that, it's often just cheaper to pay it for the duration until it falls off on its own.
posted by furnace.heart at 12:26 PM on May 9, 2018
The great news there is that if it hasn't already, your loan has probably been sold a couple times to different lenders, who all might have different rules around this. Just bide your time until you land on one who has more relaxed rules around it.
If you trust your real estate agent, you could also ask them for the 'comps' in your neighborhood, and that can tell you if you're +$70k in equity you actually have. Depending on where you are, an appraisal can sometimes trigger higher property taxes.
While it sounds like you'd come out ahead, PMI does automatically come to an end and if you're getting close to that, it's often just cheaper to pay it for the duration until it falls off on its own.
posted by furnace.heart at 12:26 PM on May 9, 2018
Response by poster: Quick chiming in - this actually started because I contacted my bank to see if getting a new appraisal without refinancing could drop PMI and it can thanks to state law.
Dropping automatically when it comes to 79% is still alittle under 30K away so given the additional principal I pay a month, I'm still 4-6 years away from dropping it automatically which the appraisal would pay for itself in under a year if I drop PMI.
Looking at closing prices for newer homes with smaller lots (almost 1/4 acre smaller) are still 30K plus over what I paid. Newer homes are of course nicer, but hey, I have 3/4 acre with a fireplace acting as a dividing wall and can afford the sweat equity to make my home nicer.
posted by lpcxa0 at 12:31 PM on May 9, 2018 [2 favorites]
Dropping automatically when it comes to 79% is still alittle under 30K away so given the additional principal I pay a month, I'm still 4-6 years away from dropping it automatically which the appraisal would pay for itself in under a year if I drop PMI.
Looking at closing prices for newer homes with smaller lots (almost 1/4 acre smaller) are still 30K plus over what I paid. Newer homes are of course nicer, but hey, I have 3/4 acre with a fireplace acting as a dividing wall and can afford the sweat equity to make my home nicer.
posted by lpcxa0 at 12:31 PM on May 9, 2018 [2 favorites]
Redfin is decent as a search for recently closed sales, but right now in the MSP market it's probably pretty safe to look at listing price if < 60 days on the market as it's my understanding things are selling right at or above list. If you can find GOOD comps on a map search, that's what the appraiser will use too. I think a realtor could totally tell you where you're at. I would definitely add at least pending sales if not listing prices to your search as nothing has had the time to close since the end of winter and the season had such a late start. So recent closes will be affected by the winter slump in price. I'd maybe keep an eye on it and give it a month or two to give an appraiser more to look at.
My nightmare appraisal story: we tried to drop PMI a few years ago based on having paid down >20% of our loan, bank demanded an appraisal because it was "early", and it was entirely wasted money as we apparently got a notorious appraiser. The house appraised at half of what we ended up selling it for last year and far less than we had bought it for right after the housing crash. So bad/insane appraisers are out there - the appraisal was filled with pictures of messy closets and negative comments on the style of the house. It was a difficult to appraise house due to few comps but it appraised fine both after the crash when we bought it and also when we sold it last year (take that, crazy guy). The appraiser is hired by the bank even though you pay for it, because appraiser selection abuse was a big factor in the crash. "My appraiser hates everything and nothing in the city is selling for this little" is not cause for tossing it out and getting another, unfortunately. We appealed with more accurate comps and he added on like $5k and told us to go away. The bank said "ha, no" to the PMI removal request and we refinanced with a different bank under some rule that allowed refi with an automated appraisal.
So it can happen, but I've bought three houses, sold two, and refinanced twice, so total of 7 appraisals, and we only had trouble once, and I haven't heard too many similar horror stories.
posted by pekala at 12:50 PM on May 9, 2018 [2 favorites]
My nightmare appraisal story: we tried to drop PMI a few years ago based on having paid down >20% of our loan, bank demanded an appraisal because it was "early", and it was entirely wasted money as we apparently got a notorious appraiser. The house appraised at half of what we ended up selling it for last year and far less than we had bought it for right after the housing crash. So bad/insane appraisers are out there - the appraisal was filled with pictures of messy closets and negative comments on the style of the house. It was a difficult to appraise house due to few comps but it appraised fine both after the crash when we bought it and also when we sold it last year (take that, crazy guy). The appraiser is hired by the bank even though you pay for it, because appraiser selection abuse was a big factor in the crash. "My appraiser hates everything and nothing in the city is selling for this little" is not cause for tossing it out and getting another, unfortunately. We appealed with more accurate comps and he added on like $5k and told us to go away. The bank said "ha, no" to the PMI removal request and we refinanced with a different bank under some rule that allowed refi with an automated appraisal.
So it can happen, but I've bought three houses, sold two, and refinanced twice, so total of 7 appraisals, and we only had trouble once, and I haven't heard too many similar horror stories.
posted by pekala at 12:50 PM on May 9, 2018 [2 favorites]
If most of your work is cosmetic, it may not appraise higher even if it would actually sell for more. The time I did an appraisal to remove PMI I had literally torn down walls and an ugly drop ceiling, repainted everything, and rewired the whole house. The only thing that mattered? The 12' of fence I put up between my neighbor's fence and my house, giving me a fully fenced back yard.
posted by donnagirl at 1:53 PM on May 9, 2018
posted by donnagirl at 1:53 PM on May 9, 2018
If I were in your shoes (and I was in the past, with my first house in a gentrifying neighborhood) I'd probably go for it. I agree that a real estate agent may be able to reality check you a bit before you totally go for it. Do you have a good relationship with your buyer's agent? Maybe ask them for an informal guesstimate?
Another consideration: how much is your monthly PMI? How much would you pay in PMI if you waited the 4-6 years for the principal to drop to the correct level? $600 may not seem like so much in comparison.
Good luck. PMI stinks.
posted by Sublimity at 6:01 PM on May 9, 2018
Another consideration: how much is your monthly PMI? How much would you pay in PMI if you waited the 4-6 years for the principal to drop to the correct level? $600 may not seem like so much in comparison.
Good luck. PMI stinks.
posted by Sublimity at 6:01 PM on May 9, 2018
We just did this in Minneapolis (within the city limits) and it was well worth it. We had to pay I think $150 for the assessor but we "made" almost 50k in value and dropped PMI the next month. Saved us at least $1,000. We have not made any improvements and actually had some in-progress work at the time (carpet in one room removed but floors not refinished, popcorn paint partly removed from a ceiling, door missing a doorknob) and it didn't faze him.
posted by peanut_mcgillicuty at 8:54 PM on May 9, 2018
posted by peanut_mcgillicuty at 8:54 PM on May 9, 2018
We ... actually had some in-progress work at the time (carpet in one room removed but floors not refinished, popcorn paint partly removed from a ceiling, door missing a doorknob) and it didn't faze him.
We had the same experience. We had an appraisal done in the middle of a bunch of DIY work. The house was legitimately a disaster, with all the floors torn up and walls opened, and the appraiser didn't blink. I'm not suggesting that is best practice, and I am sure it depends on who you get, but at least for us it just wasn't a big deal. The house probably appraised for less than it would have with the work done and everything looking pretty, but not enough to matter.
posted by Dip Flash at 6:30 AM on May 10, 2018
We had the same experience. We had an appraisal done in the middle of a bunch of DIY work. The house was legitimately a disaster, with all the floors torn up and walls opened, and the appraiser didn't blink. I'm not suggesting that is best practice, and I am sure it depends on who you get, but at least for us it just wasn't a big deal. The house probably appraised for less than it would have with the work done and everything looking pretty, but not enough to matter.
posted by Dip Flash at 6:30 AM on May 10, 2018
I'm inclined to believe a good appraiser looks past the superficial stuff and, more importantly, stuff that you think is valuable but may not be to other people.
Case in point: we have an unfinished basement. Appraiser asked if it was finished and I said no, so he could skip that part of the walk-through. I then asked how it affects the price and he said, and I quote, "I add a flat $10K. Doesn't matter what kind of finish is down there."
posted by JoeZydeco at 11:13 AM on May 10, 2018
Case in point: we have an unfinished basement. Appraiser asked if it was finished and I said no, so he could skip that part of the walk-through. I then asked how it affects the price and he said, and I quote, "I add a flat $10K. Doesn't matter what kind of finish is down there."
posted by JoeZydeco at 11:13 AM on May 10, 2018
You may not even need a full appraisal. We got our PMI dropped (after requesting it to be) because the lender got a valuation letter from a broker (though that may have been to confirm that the house hadn't dropped in value).
posted by yggdrasil at 11:55 AM on May 10, 2018
posted by yggdrasil at 11:55 AM on May 10, 2018
This thread is closed to new comments.
If you look at recent closing prices of similar homes near you, do you see a shift in value? That will tell you more, and it's also what an appraiser will look at when doing his comps.
I've had lots of appraisals done on my property and the appraisers never really seem to care about small things like plumbing fixes and landscaping. They're counting and measuring lot and living space and then will compare it to other homes in your neighborhood. Sure, if there's a roof missing or holes in the walls that will be noted. Mentioning the upgraded electrical might help.
Dropping the PMI is a good thing if you can do it. I say go for it.
posted by JoeZydeco at 12:08 PM on May 9, 2018 [4 favorites]