1

I contacted my county's tax office today and I was told that my home is appraised $7,000 more than it was a year ago. Great news, especially as I'm fighting to stop paying private mortgage insurance (PMI).

In order to get rid of PMI I must tell my lender that I own 20% or more equity on the home and that must be done via an appraisal. My question is: is the official county appraisal valid in this case, or do I have to hire a private appraiser if I want to get rid of PMI?

  • 2
    That would be a question for your lender to answer. – chepner Jan 18 '18 at 16:36
  • 1
    You should specify which county and state you are talking about. In Illinois, for example, the assessed value for property tax purposes is supposed, by law, to be 1/3rd of the fair market value. Note also that your lender might require that the appraisal be done by an appraiser on their approved list, not by a random name picked out of the Yellow Pages or your brother-in-law who happens to be an appraiser. – Dilip Sarwate Jan 18 '18 at 16:52
6

Usually, if you want to remove PMI prior to the regularly scheduled fall-off, you will need to pay for a new appraisal. The reasons for this are:

  1. (This point is strictly conjecture:) From the bank's point of view, requiring this extra hoop to jump through means less people will do it and/or wait longer before they do, leading to slightly higher profit for the bank.
  2. Every jurisdiction differs on what time period the county appraisal covers. Many locations appraise for tax purposes based on the value of the home in the previous year, or the average of multiple previous years. To remove PMI you need an appraisal based on now.
  3. Most of the time, the appraisal for tax purposes is typically lower than the market value. I suspect this is purposely done to lesson the number of complaints and appeals the county would have to deal with, all of which are expensive and time consuming to respond to.

The good news though, is based on point #3, if your county appraisal is leading you to believe PMI can be removed now, then it's very likely that a market appraisal will be even higher. The exception to this is in an economic downturn where property values are drastically falling, but I doubt that is the case in most places in the US (as of today's date).

All that being said, the real answer is lender specific. I've heard of one lender actually using the Zillow stated value for determining whether to drop PMI.

  • This is also loan program specific, as PMI has come to be used to cover any type of mortgage insurance premium, like that in an FHA mortgage. In that case, there may be requirements to pay the mortgage insurance premium for a fixed period, regardless of current loan to value. – iheanyi Jan 18 '18 at 18:29
  • 1
    @iheanyi - this answer (and question) wouldn't be relevant for FHA loans since (like you said), PMI cannot be removed early with FHA. The only way to lose the PMI early with FHA is to refi. – TTT Jan 18 '18 at 19:25
  • Just to be clear, your first point is based on ...leading to slightly higher profit for the bank which isn't really true. Banks don't make any profit from a customer of theirs having PMI. – dwizum Sep 13 at 17:11
  • @dwizum - I probably could have worded that better. I meant overall profits- not profits from the PMI. When the LTV amount is close to the cutoff, the bank is in a better financial position while the PMI is still in place, since it can't possibly lose money in foreclosure. But if foreclosure happens after the PMI is removed, the bank can lose money. So on average, the bank's position is slightly better the longer the PMI remains in place, i.e. slightly higher "profit". – TTT Sep 13 at 23:24
  • 1
    That's a fair point and I agree! Lenders tend to have mixed feelings about PMI. On the one hand, it adds a layer of protection. On the other hand, it means the customer is paying more out of pocket each month (to a third party), which may mean cash flow limitations come into play in terms of sizing the loan, etc. – dwizum Sep 16 at 12:43

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.