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Buyers who put down less than 20 percent down payment are required to pay Private Mortgage Insurance (PMI). The Homeowners Protection Act of 1999 requires lender to inform borrower when they can cancel coverage. On August 4th 2015 - the CFPB bulletin further clarifies some requirements of the Homeowners Protection Act and is intended to help servicers comply with the law but does not create any new rules or requirements. 

Here are 4 ways on how PMI can be removed: 

  1. PMI can be cancelled once the loan to value is 80 percent or less base on the original purchase price or appraised value - whichever is less. Automatic cancellation can also happen once 22 percent equity is reached (for mortgages with terms of 30 years or more).
  2. Get a new appraisal instead of the original purchase price or appraised value when deciding whether you have 20% equity threshold. 
  3. Remodel to increase value such as adding a room, kitchen or bathroom upgrades. Then ask the lender to recalculate your Loan-to-Value (LTV) ratio using the new value figure. 
  4. PMI may cancelled during the first 5 years under the following conditions:  mortgages with terms of 15 years or less and the LTV reaches 78% or less. In order to determine whether the threshold has been reached according to the Federal Reserve Board -  follow the following steps: 
  • Step 1: Multiple the present value of your mortgage by 1.25. 
  • Step 2: Ascertain the purchase price or appraised value of your property. 
  • Step 3: If the value in step 1 is larger than in step 2, PMI will continue. If the value in step 1 is smaller than in step 2, you may request for PMI cancellation.  
In January 2015 - FHA announced that FHA mortgage insurance is now required for life of the loan. The only way out is to wait until you have 20% equity and to refinance into Conventional Financing.  

Here's what you should do to request PMI cancellation:

  1. You must request for cancellation in writing.  You should receive an annual letter from mortgage servicers who to call for information about cancelling mortgage insurance.
  2. You have to be current on your payments and have a good payment history.
  3. You must not have any subordinate liens of your property.
  4. You might have to get an appraisal to demonstrate that you have at least 20% equity. Estimate how much your house is worth using Zillow or contact me for a copy of your Comparative Market Analysis.

If you have a problem with a lender over PMI cancellation, contact the Federal Trade Commission and Washington state's attorney general.

Posted by Sam Kader on January 27th, 2019 9:23 AM
What is an Appraisal?

An appraisal is an estimation of home's market value done by a licensed appraiser using comparable recent sales of a home in the neighborhood. Real estate brokers cannot perform appraisal. Appraisals are ordered on behalf of a home buyer's lender to protect the interest of the lender. The lender's underwriter will compare the appraisal price to the final sales price of the home to ensure the value of the home is equal to or greater than the loan amount. If the home appraised lower than the final sales price, the home buyer may be able to renegotiate a lower price with the seller. If the seller will not lower the price, the buyer's lender may ask that the buyer put more money toward their down payment in order to make the difference or the buyer can walk-away and receive earnest money back.
So in order to set the price of a listing by a buyer and to determine whether that price is at fair market value the respective agents are going to be looking at comparable sales. They will:

  • Look up sales within the past 3 to 6 months in the same building if possible and if not as close as possible to the subject property (usually within 1 mile radius). They will look as close as possible in the neighborhood. If there have been no sales within that period of that direct neighborhood, they will go back further or extend the area. This will be done using Multiple Listing Service sales data which is the most current and accurate.
Compare the sold properties with the subject property:
  1. Amenities such as pool, parking etc.
  2. Size
  3. Location
  4. Upgrades
  5. Adjust the price of the comparable property according to the pluses and minuses of those homes compared with the subject property. For instance, if the comparable property has a swimming pool and the subject property doesn't, then the comparable price will be lowered. The opposite is true if the subject property has the pool.
  6. Check for extenuating circumstances such as a short sale or foreclosure which are hardship sales and unfairly skew the prices. 
  7. Not take into consideration current listings in the area of the subject property that have not been sold yet.

What Is Appraised Value?
Appraisals provide an objective opinion of value but is not an exact science, therefore appraisals may differ.  Appraisals are usually based on market value of what the property could probably be sold for in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as a specified date and the passing of title from seller to buyer under conditions whereby:

  1. Buyer and seller are typically motivated;
  2. Both parties are well informed or well advised and each acting in what he considers his own best interest;
  3. A reasonable time is allowed for exposure in the open market;
  4. Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
  5. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Other types of value include insurance value, replacement value/cost, and assessed value for tax purposes (please note that all these values differ from one another).

Appraised value is not a constant number. Changes in market conditions can dramatically alter appraised value. Appraised value doesn't take into account special considerations such as distress sales.  Banks usually use either the appraised value of the sale price whichever is less to determine the mortgage they will offer.

An appraisal is based on analyses, opinions and conclusions that were developed and prepared in conformity with the Uniform Standards of Professional Practice that are in effect at the time the report was prepared.  Appraisals are done by disinterested 3rd parties that have no present or prospective interest in the property that is the subject of this report and no personal interest with respect to the parties involved. Depending on what the reason for the CMA it may or may not be performed with possible personal interest such as getting a listing, etc.

What is a Comparative Market Analysis?

Comparative Market Analysis (CMA) is an evaluation of similar recently sold homes (called comparables), that are within an area close to the home intended to be bought or sold. A Comparative Market Analysis establishes the current market value of the subject home and are prepared by real estate brokers. It is not the same as an appraisal which performed by a licensed appraiser. CMA's are developed without any standards.

Posted by Sam Kader on March 6th, 2016 5:15 PM

Since July 2010 when Dodd-Frank Act was signed into law requiring appraisal independence, mortgage brokers, loan originators and lenders are prohibited to be involved in the appraisal process. Thus, a neutral independent third party - Appraisal Management Company (AMC) was appointed to take over the process.  Each lender has a set of AMC companies that they work with.

What buyers can do:

  • Request for an appraiser from your county or neighbouring county. 
  • Request for the appraiser to have professional designation such as SRA (see below), or member of the Appraisal Institute (MAI).
  • Share your knowledge of short sales or distressed properties that might skew the valuations.
  • Buyer/seller/selling and listing brokers can still talk to the appraiser.

What sellers can do:

  • Hire an appraiser from the Appraisal Institute  within the county.
  • Provide a copy of the appraisal to the buyer's appraiser.
  • Question a low appraisal. There is a process that can be taken through the Appraisal Management Company (AMC) to dispute low valuation.

Fix health and safety problems first. We will require repairs such as rickety railings, broken windows, loose steps, expose electrical wiring to be corrected prior to closing. All utilities must be working properly during inspection including smoke and carbon dioxide detector.
Tidy up.
Items not attached to the house - say, clothes scattered on the kids' bedroom floor aren't supposed to count. But clutter obscures the structure and creates a bad impression.
Don't kill yourself cleaning.
You want it clean, but this isn't a white-glove inspection. Appraisers understand homes are meant to be lived in. However, a dirty, unkempt home can increase its appearance of wear and tear and that condition can affect value.
Grasp the mindset
An appraiser will try to see your home through the eyes of a potential buyer, even if you're only refinancing.
Maximize views.
Remove ivy, weeds and overgrown landscaping that obscure a view. If you've got it, flaunt it.
Mow the lawn, trim the hedges.
 A property that looks good will develop  a 'what else is right?' attitude.
Keep up with general maintenance.
In a glutted market, buyers will choose the spiffiest properties.  Make any repairs that would catch the appraiser's eye such as replacing torn window screens, tiles falling off the shower surround or vinyl torn in the laundry room. The appraiser will assign an "effective age" to the house which is based on the condition of the home and any updated performed.
Don't over-improve.
The neighborhood establishes the value. If your home is already valued in the top 10 percent for your area, forego the upgrades and focus on maintenance.
Remodel strategically.
Don't make the mistake of the guy who tried to upgrade his small, 1940s home by adding a giant picture window forgetting that the house sat right next to a gas station.

Don't expect miracles from a single upgrade.
Kitchens upgrades usually bring the best return (but not always). Tour new homes in your area to see what materials and amenities they include. Builders know what sells.
Choose neutral (or at least tasteful) colors.
Get money in the bag before you launch a remodel. Once the house is gutted, you're stuck, because appraisers look at current value, not projected value.
Share the history.
Tell the appraiser what you've done to the house, when it was done and how much was it cost. You may not get full credit but it doesn't hurt to note it. Let the appraiser know about any improvements you've made to the home such as new floors, windows, counter-tops or a new roof and the contact information of the contractor who performed the work.
Point out red herrings. With the implementation of recent Home Valuation Code of Conduct, lenders are not allowed to contact appraisers anymore. However, agents and potential homeowners can provide the appraiser your own comps of similar size properties, condition and amenity levels in your immediate market area. If a neighbor recently unloaded a house in a distress sale, explain the circumstances so their low-ball price such as divorce, financial distress or heavy concessions can be pointed to the appraiser so it doesn't get factored into the "comps" against which your home will be judged.
Know your market. A four-bedroom home is usually worth more than a two-bedroom (in general).
Top appraisers often carry the "SRA" senior residential appraiser designation and can be found at the nonprofit Appraisal Institute

If you find serious mistakes in the appraisal report and the appraiser refuses to make corrections, appeal directly to the lender. If the lender stonewalls and the deal falls apart - consider filing a complaint to the 
state appraisal board.  I am here at your service. 


Posted by Sam Kader on June 15th, 2015 8:51 PM
FHA has recently published Mortgagee Letter 2015-01 implementing the reduced annual mortgage insurance premiums effective for case numbers assigned on or after January 26th, 2015. FHA will temporarily approve cancellation requests for active case numbers within 30 days on the effective date of this Mortgagee Letter. 
  • Annual premium is reduced 50 basis points on both purchase and refinance transactions.
  • Applies to all FHA loans w/ terms greater than 15 years
    • There is no change in premium on 15 year or shorter terms
  • All loan types are affected except streamline refinances that are refinancing existing FHA loans endorsed before May 31, 2009
    • Hawaiian homelands (Section 247) are also excluded.
  • There is no change to the upfront premium or the life of loan requirement - currently at 1.75%.

Call me if FHA financing is the best for you.

Posted by Sam Kader on January 12th, 2015 3:56 PM


Recent HUD announcement to increase its annual mortgage insurance and mortgage insurance for the life of the loan makes the decisions to go conventional a bit easier (if one can qualify). Here are some pointers for conventional with Private Mortgage Insurance (PMI):

  • 700 FICO score, 3% down, 45% maximum Debt-To-Income (DTI) on Owner Occupied (OO), Single Family residence (SFR).
  • 660 FICO score, 5% down, 45% max DTI on OO, SFR/Warrantable Condo.  
  • 700 FICO score, 10% down, 45% DTI on second home (must be located in resort/vacation area).
  • Collections may be required to pay.
  • Bankcruptcy requires 4 years since the date of discharged.
  • Adjustable Rate Mortgage (ARM) - DTI is capped at 41%.
  • Manually underwritten files - 10% down is required.
  • Full appraisal is mandatory.
  • 3 - 4 unit properties are ineligible.
  • Interest Only (IO) loans are ineligible.
  • Homeowners with prior claims are ineligible.

3% gift funds is allowed provided that:

  • Max DTI is 41%
  • 740 FICO score is required.
  • Fixed-rate loans only.
  • SFR only.
  • OO only.
  • No subordinate financing allowed.

Please be advised that the files will require closer scrutiny from the lender as well as the mortgage insurance company. Pacific Coast Financial will pre-underwrite the files internally to ensure that our files will be approved.  Each borrower is unique. Please call or email us for free consultation.

Posted by Sam Kader on February 17th, 2013 5:17 PM



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