Owner-Occupied Mortgage PMI - Through Forced Appreciation Only?

Question

On my personal residence (a property I plan to rent out eventually), I have a conventional 30-year fixed mortgage with Wells Fargo. I purchased the property back in April 2018 and only had to put 5% down. Due to some recent sales in our neighborhood, the comps have increased the value of my property and given me the 20% equity (80% LTV) needed to remove PMI. However, when I spoke with Wells Fargo an hour ago, I was told that in order to remove PMI, the value of the property must be increased due to "significant improvements made to the property", not through natural price appreciation.

Has anyone come across this before? What are your thoughts?

I was told that Wells Fargo isn't able to tell me what's considered "significant". It is up to the appraiser or broker (if I chose to do a Brokers Price Opinion). I've put in a new hot water heater (about $2k) and put about $10k into fencing/major landscaping (bringing in equipment, etc). I'd consider this in total to be significant, but the idea of "significant" being determined by a third party seems a bit "gray"...

Robert Leonard

Jaiden Olsen · Answer

Robert. I was in a similar situation lats year. We bought our house for $205k in 2015. 1952 rambler in the Greater Salt Lake area with an unfinished basement. We spent $30k updating the place and finishing the basement. It wasn't until after the basement was finished that we were able to get rid of PMI. By spending that $30k, we were able to increase the value of our property to $320k.

In my experience, any mortgage company I've talked to will not rely on market appreciation alone to get rid of PMI.

Here is what I have learned:

• When listing capital improvements made to the property, and how much you spent, make sure that you account for your time spent making those repairs, or at the very least have a contractor estimate what it would have cost him/her to do it. Often times, an appraiser or broker will just increase your property value by the numbers you give to him/her showing how much you improved the property $$.
• Get a broker's priced opinion (BPO) rather than an appraisal. BPO is way cheaper. Check with your mortgage company before you do this to make sure they will accept a BPO instead of requiring the property to be reappraised.
• If the BPO/appraisal comes back showing that you have 20% equity in your property, PMI can likely be removed.
• If you haven't done capital improvements in excess of 20% of your property value, but your home is still worth more than that based on current markets, you can always refi... but I wouldn't necessarily recommend that.

Jaiden Olsen · Answer

@Matthew John, PM me so you can send me a check! ;)

Just kidding.

That's awesome! Congrats man!

Matthew John · Answer

@Jaiden Olsen Thanks for this! I had no idea I could do this without getting an Appraisal.

I just called Chase and they said they will send me a form to fill out. Costs $105 to get a BPO (which they encouraged over an Appraisal) and takes a few weeks to get it sorted. They said if you've made significant improvements and the amount you owe is at least 80% of the current value, then they will remove it!

If this goes through it will drop my monthly payment to $474 from $518. Not a ton, but if I can save $44/m for the next 10 years it's over $5000 I'm saving!

Jaysen Medhurst · Answer

@Robert Leonard, having some leverage with WF is the main point. Also, the closing cost may be worth it to save $100/month for 5+ years.

Chris Mason · Answer

PMI cancellation is governed by the Homeowners Protection Act of 1998.

Link: https://www.mgic.com/-/media/MGIC/PDFs/71-41599hop...

Matthew John · Answer

@Robert Leonard Totally worth it! This is my primary for now. My tenants at the other properties easily cover this monthly payment.

Next step is to finish improvements when it stops snowing and get that HELOC to buy more rentals!

Robert Leonard · Answer

@Matthew John Exact same thing for me. I am waiting on my paperwork from Wells Fargo. For you, even at a $44/month savings, only takes 2.4 months to recoup your investment in the BPO.

Robert Leonard

Robert Leonard · Answer

@Dylan S. Very interesting - our fence and yard work was upwards of $10-$15k. I'll have to risk the $200 for the BPO and go for it.

Robert Leonard

Dylan S. · Answer

@Robert Leonard I had the same scenario a few months ago.  WF held my mortgage for my primary residence which I purchased 4 years ago.  I too added a fence, replaced the hot water heater, replaced the roof, along with a handful of other smaller projects.  I also opted for the BPO appraisal due to the cost savings.  The appraiser contacted me prior to the appraisal asking me to have a list of improvements I have made to the property, the dollar amount, and the dates of improvements.  My understanding was that they didn't care about all the regular "maintenance" items (hot water heater, roof, etc.) but the fence was a "significant" improvement to the property.

I successfully removed my PMI through this process.  It sounds like your situation is very similar to mine.  In my opinion,  you'll be fine if you move forward with the BPO.

Robert Leonard · Answer

@Russell Brazil they add value in my market. The hot water tank not so much, but the last one failed so it was a replacement out of necessity, not to increase the value of the property. The fencing increases the value of the property because it makes the yard actually useable, where it wasn’t before. However, both improvements likely cost more than they increased the value of the property. The property value has just risen dramatically due to natural market conditions in my area.

Owner-Occupied Mortgage PMI - Through Forced Appreciation Only?

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