Refi terms question - LTV 80.1%!

[Sean Crowe]

Hello,

I'm working on a refi for my primary residence. A lender has offered us a loan estimate (waiving the appraisal) and magically valuing our property at $555,555. The loan amount is $445,000. This puts the LTV at 80.1% and forces us to pay PMI for 1-2 months before we can request PMI be stopped. Getting a rate of 2.5%.

$555,555 seems like an arbitrary number designed to put the LTV at just above 80%. I asked if they could loan us $444,000 instead, with us bringing a bit more cash to close, so that we could avoid having to deal with PMI at all (their terms for escaping PMI seem very vague). The loan officer tells me "I don't know why, but if your LTV dips below 80%, we will have to decrease credits by $1500."

I would have more skin in the game with a lower LTV. Why would they penalize me for this? Are they hoping to exploit me for more PMI than 1-2 months?

Thanks in advance,

Sean

[Paul Defngin]

@Sean Crowe both FNMA and Freddie Mac are allowing Property Inspection Waiver in some instances and it looks like that is the case here for you. Congratulations.

Also, I would thank your loan officer. Sounds like he gave you solid advice and save you much more, than had you actually been at an 80% loan to value.

What you may not know is that if your loan to value was at 80%; yes, would not have PMI but your interest rate would most likely be higher by at least 0.25%. That is because both GSE's assess Loan-level pricing adjustments (LLPA) - fees based on certain criteria such as loan purpose, property type, loan to value, etc.

LLPA were introduced into conventional mortgage lending in April 2008, and LLPAs remain in effect today. Last month they also implemented another 0.50% adverse market delivery fee for any refinance loans, which currently had been postponed until December.

So by taking the loan to value to 80.1; you actually secured a better interest. And if you have excellent credit scores, the cost of the monthly PMI (if you go with option bs buying it out or financing it into the loan) over just a little over 12 months is probably less than $1500.

If you don't want to wait for the 12+ months, make a principal curtailments. Then it falls off sooner. Your gain - a lower interest rate for the life of the loan. Now if you had been at 80%; you'd have no PMI, but a 0.25% higher rate for the life of the loan. Which would you rather do?

Give thanks to your smart Loan Officer 😀!