By Claire Spahr
Fortune favors the informed. Homeowners who know the value of their home know when to refinance out of their PMI. In a strong market, the equity of your home may go up enough to refi in less than a year! (Email me if you want to find out more!)
When my good friend Maria contacted me for an updated broker price opinion (“BPO”) for her home I was happy to oblige. Maria, smart, savvy, and proactive, wanted to know if she had enough equity to refinance out of her PMI loan. After just 20 minutes of research, I saw that she was sitting pretty and ready to move forward with her refi application.
PMI, Private Mortgage Insurance, is a required monthly fee for homeowners who owe more than 80% on their home. With so many loan options requiring less than 20% down, there are lots of folks paying PMI. (According to the National Association of Realtors, the average down payment in 2014 was 14%.)
Maria and her hubs, Gaurav, bought their place less than a year ago with 15% down. In the current Denver area market, it is not uncommon for a home to jump in value in less than a year. (Plus, she had an amazing agent when she bought. Wink, wink.)
The idea with the refi is to show that you owe 80% or less than the current value of your home. The current value may have changed based on market activity or improvements that you have made since buying.
The risk of applying is the cost of appraisal, which is why Maria contacted me for an estimate. If she was going to pay $500 for a refi appraisal, she wanted to know that she was facing good odds that the appraisal would come in where she needed it to be.
Her odds were, indeed good, as I emailed her later that day:
[…] I think it is completely safe to say that the house’s *market* value is well over $460,000. (However, I just want to point out that market value and appraised value- for the purposes of refi- don’t always seem to line up. I think it’s worth risking the cost of appraisal.)
Look at these 3 “comps” in the neighborhood. Your place has a lot more curb appeal and the back yard, which includes a city view, is much more desirable than any of these. The ranch has similar finishes and updates but less square footage- when you plug in the price per square foot of that house, it puts your house well over the target. I am guessing that the current market value for your place is closer to $480-$490k+, possibly over $500. (When you get over about $450 in this area there is market compression, but I still think it’s very safe to say that the value has exceeded $460 by now.)
The quick and dirty estimate available in the realtor view of public record is $509, this estimate is based on recent sales in the area, square footage, etc. I will send you that report next…
I have never refinanced, personally, so Maria agreed to a coffee date/”interview” to fill me in on the experience. She credits her lender for the smooth process, which took 3 weeks from start to finish. She said it was just like applying for a regular home loan as far as paperwork goes. An appraiser came out to see the house, and they closed on the refi shortly after that. One HUGE BONUS that I hadn’t even considered is that she gets a month off of paying mortgage! August. Free mortgage month. Her new monthly payment, $120 lower, will be due next month!
If you would like to explore refinancing out of your PMI, drop me a line, I am happy to provide you with a BPO (remember, that means “Broker Price Opinion”), and some great lender referrals. And, for those of you who are wondering about where the text convo went, we moved from Stapleton to Congress Park. Not Table Mesa but still… 20 minutes closer to Maria and Gaurav.