In a previous post I talked about how I planned to get rid of Private Mortgage Insurance (PMI). Here is a quick recap of what I was planning.
I purchased the current home I house hack using a FHA 3.5% down payment. A downside of using a FHA loan is paying Private Mortgage Insurance (PMI). Private mortgage insurance is an extra cost associated with the loan. This is a sunk cost you will never see again. Lenders charge this as an FHA loan is considered to be a higher risk loan. —–
My PMI payment, on a loan of $281,000, is $97 per month. Again, this is a sunk cost. Each month I am paying $97 that isn’t going towards my principal or interest payments. Knowing my home has appreciated since purchasing, I asked my lender if there were any options to get rid of PMI. One option my lender provided to get rid of PMI was to get an appraisal for my. The cost of the appraisal was $150.
What Appraisal Price I Needed
If the appraisal came back at $350,910 or higher, they would remove the PMI payment each month. That would equate to a 1.5 month payback.
Final Appraisal Results
Well, the results are in! My home appraised for $340,000. Unfortunately $10,910 short of the $350,910 needed to get rid of PMI. Not what I was hoping for, but if you don’t take action you will never know!
Determining Path Forward]
With all the information needed to make an informed decision, I see two options now.
Option 1: Do nothing. I thought I had a really good chance to get the appraisal number needed to get rid of PMI. Now that I have the official appraisal back, I can wait till I have naturally paid down an additional $11k in principal prior to going back and asking for the PMI to be removed.
$470 of the $1,777 mortgage payment currently goes down to principal. With that being said, it will take 23 months to pay an additional $11k in principal. I could wait till that time and then ask to get another appraisal. In the meantime, I can continue to monitor what my expected home value is. If anything drastic (for the better) happens, I could go back and potentially ask for another appraisal.
Option 2: My end goal is to have something pay back in less than 16 months. In this case, I could wait for 20 months, continue paying my normal $1,777 towards my mortgage and then pay an additional lump sum of $1,600 towards principal to get rid of PMI. At the same time of paying down the mortgage, I can monitor my home value to determine if it is worth taking another stab at calling my mortgage lender.
I think I am going to go with Option 2 for now. I am always open to feedback from anyone who might know of other options that might be available to me!
Key Takeaways
- It is okay if you make a money move and it doesn’t pay off. The simple fact you made a calculated risk shows you are moving in the right direction.
- Even when something doesn’t work out the way you had hoped, figure out the next best thing to do. Still create a long term plan
- PMI sucks, but when you are house hacking, is it really that bad? 🙂
