under contract - seeking no PMI finance options for slam dunk triplex deal

[Austin Cox]

Recently under contract on a triplex (Philadelphia). Would love to find better than retail/portfolio/not sold on secondary product options, preferably with no PMI, as we have $120k-$180k of equity built in via sales price vs market value.

VA loan entitlement mostly used up so have been looking at FHA and Conventional products. Have not been impressed by current rates/loan estimates/cash to close.

Would love any referrals or recommendations if y'all have some.

Inspection is Monday (11/18)

[Marcus Auerbach]

Close the deal with a local bank or CU, worry about PMI later. You'll be around 7% and whether you like it or not, conventional, FHA and VA will be your best choices (depending on your financial profile, hard to say which one).

Current forecasts are still showing rates to trend slightly down in 2025, so that could be your opportunity to cash-out refi.

[Austin Cox]

thanks for the reply - I'm asking specifically because I know our financial profile and deal dynamics will qualify for better than market/retail sold on secondary products

So while I appreciate the words of advice - this is not what I'm looking for!

[Alan Asriants]

if you have that much equity, you can purchase the property with conventional and then ask for PMI waiver due to equity.

[Austin Cox]

great point - we're on the same page! There should be around 22-25% equity built in.

[Bryan Maddex]

Hey @Austin Cox

If you purchase with a conventional loan you cannot drop PMI for 2 years if you put less than 20% down. Putting 20% down will allow you to avoid PMI. FHA will have PMI for life, no way around PMI when using an FHA deal.

VA - Couple options here. 1st, refi your old loan out of a VA loan to free up your entitlement. 2nd, have you tapped into your Bonus Entitlement (or Tier 2 Entitlement)? Lets pretend you have $300k in entitlement remaining as Bonus Entitlement and you are buying a property for $400k. You only need $25k down on a $400k purchase using bonus entitlement.

REFI Option: while you cannot drop PMI on your purchase using conventional loan for 2 years, you CAN refinance a loan and use the current appraised value when determining your PMI cost. So, if you close with a hard money loan, then refi. If you have 20% equity in the home at the time of the refi, you will have no PMI.

Also, you can always go up on your rate to get "lender paid MI". Yes, this will shift the cost into your rate so your payment will be higher, but usually cheaper than what Monthly PMI will cost. 

Last, PMI is not forever. The industry is predicting rates will be in the high 5s by the end of next year. No matter what rate/pmi you get now, it is likely very temporary (so long as the market pulls back as expected).  Once you refi, you are back to using the full appraised value and as long as your refi is 80% of the value of your home or less, no PMI.

Let me know if you want to quote out any of the scenarios above!

[Stuart Udis]

@Austin Cox I believe the problem here is you've been accustomed to using VA loans which are close to 100% financed transactions and you are comparing your options to the terms you've obtained in the past. You say the property is worth $120k-$180k more than the contract price and it appears you are looking for a lender who is willing to cut you a break on terms because of the built in equity. Unfortunately lenders will only be looking at the contract price based on what you've shared, not the built in equity regardless of whether the property actually appraises as well as you expect. There are circumstances where lenders will give credit for imputed equity but that's when the borrower has owned the property where appreciation has occurred, entitles the property or does something more than merely sign a good contract which appears to be the case with your purchase.

It sounds like you've exhausted your VA loan capabilities but if you haven't, your options are VA financing with less capital required up front and PMI or alternatively using a loan product that requires more up front capital and no PMI. If the appraisal actually substantiates your expected built in equity you can always refinance and its up to you in the meantime to decide whether you want to go the capital preservation route (VA) or alternatives. You should also consider transactional costs associated with all options as that could play a factor.

At the end of the day, a lot of the decision making hinges on the actual value your appraisal returns. It is a bit of a red flag that you can't narrow down on a value and are expecting a potential $60K swing (120k to 180K in equity). This is significant when you are looking at loan products that tell me the size of the transaction you are considering. More to the point, in Philadelphia the maximum FHA loan amount for 3 family of $863K. It's one thing to have a $120K-180K range in expected built in equity when you are looking at larger transactions but that's quite a spread given the size of your transaction which leads me to believe your valuations may not be entirely accurate.

[Austin Cox]

thanks for your reply! We're not letting a VA terms bias anchor expectations ... rather understand that plenty of other folks have received better than retail/portfolio/non sold on secondary products for much better than market deals. In a high rate environment, I'm here to look for best in class partners, or referrals to such, to get this to the finish line.

This example: under contract for around $700k with 2020 Philadelphia city appraised value at around $890k. Thus, conservatively, this property is worth $860-$920k -- which is the reason for the $60k spread.  Additionally, terms should only improve after today's inspection.

Thank you!

[Stuart Udis]

This example: under contract for around $700k with 2020 Philadelphia city appraised value at around $890k. Thus, conservatively, this property is worth $860-$920k -- which is the reason for the $60k spread.

I am completely confused by this......

[Bryan Maddex]

Quote from @Austin Cox:

thanks for your reply! We're not letting a VA terms bias anchor expectations ... rather understand that plenty of other folks have received better than retail/portfolio/non sold on secondary products for much better than market deals. In a high rate environment, I'm here to look for best in class partners, or referrals to such, to get this to the finish line.

This example: under contract for around $700k with 2020 Philadelphia city appraised value at around $890k. Thus, conservatively, this property is worth $860-$920k -- which is the reason for the $60k spread.  Additionally, terms should only improve after today's inspection.

Thank you!

 Taxed assessed values have zero relationship to appraised values and are not looked at by lenders at all. Have you looked at comparable sales to evaluate what you think this house should sell for? That is a much better way to determine how much equity you are moving into.

Also, lenders do not care what the appraised value is, so long as it is at or above purchase price. You could purchase a property that is 50% below market value and still pay PMI on the purchase! Lenders use the LESSER of your appraised value or purchase price when determining your PMI requirements based on your down payment.

You can use the full value only on refinances, not on purchases. 

Lender Paid PMI may be a slightly lower payment vs just paying for monthly PMI. 

I am a broker and can shop both your PMI rate and Lender Paid PMI rate with dozens of lenders in just a few minutes if you want to reach out!

PRO TIP:  Lets talk about "selling your rate up" to have closing costs paid by the lender if you are going to plan a refinance. Not enough people consider this option, but it is literally a way to create money out of thin air!

Message me and lets schedule some time to talk strategy!

[Raymond J. Rodrigues]

You either get borrower paid mortgage insurance or lender paid mortgage insurance(higher rate, no PMI). Doubtful you'll find something with low rates, no MI, and low closing costs, as you wish to receive. Maybe you can get a non conforrming portfolio loan with no MI, but those always have higher rates.

[Eric Greenberg]

I would never use the city of Philadelphia’s appraisal value to tell you anything about a property. I really hope this isnt the metric you are using to believe you have that much potential equity. 

[Austin Cox]

we aren't (comps and pro forma) ... but it certainly doesn't hurt to see an assigned appraised value which trends 5-10% below market values

But I'm with you

[Austin Cox]

Update: after much hassle and educating folks on what is possible (since it's rare) ... we're doing VA via secondary entitlement and working with a top 5 loan servicer.

No mortgage insurance, APR in the 5s, <$30k out of pocket all in.

Next best would have been a portfolio conventional product without mortgage insurance (similar to a "physician loans").