A few months ago, I changed the layout of my Statement of Net Worth Updates to include the smallest 3 debts coming up in our debt snowball.
Since the beginning of our journey I have expressed interest in paying off additional principal on our mortgage in order to get rid of the Private Mortgage Insurance on our account.
We bought our house in 2011 for $73,500 under land contract. You can read more about what a land contract is in my post here.
We put $10,000 down in 2011 and made payments throughout the years and then in 2015 we got a traditional mortgage through Quicken Loans. At that time we had paid the principal down but with extra costs added in to our mortgage our loan amounted to $64,800 and Quicken estimated our home’s value at $72,000. We were unable to come up with another down payment for the traditional financing since we were advised that we had to do repairs in order to qualify for an FHA loan.
In the end, our house wasn’t eligible for FHA lending because of an inaccessible crawl space under a kitchen nook that was added on to our home many years prior to our purchase. Since we were not able to give access to the crawl space without significant damage which we refused to consent to, our loan almost fell through completely!
Thankfully we were able to back track and get a conventional loan seeing as this is what we originally requested in the beginning. I think some strings were pulled because of our poor experience with being guided in to doing an FHA loan and spending our down payment on repairs under their advisement.
Since then, I have done research on how to get rid of our PMI. I understood there were 2 ways for it to fall off: We can request its removal early once we reach 80% original loan to value of our home, but we would have to pay for an appraisal to prove the value. The second way is if we had done substantial improvements to the home, boosting the value which would then bump us in to a lower loan to value ratio. Again, we would have to pay for the appraisal to prove the value. The third way would be once the loan reaches 78% original loan to value, the PMI would come off automatically.
I decided the latter was the best course of action because we would not only be saving tens of thousands of dollars by making big payments very early in our loan term, but in addition our mortgage payment would be reduced $54.54 a month. We would of course continue to make the same payment to our mortgage that we had all along so this would result in an additional $54.54 a month to principal for the rest of the term of the loan.
78% of our original value would have been $56,160. Currently, we owe $61,038 on our mortgage. Getting rid of PMI has been the #3 priority on our debt snowball until a few days ago when I got this letter in the mail which effectively threw a wrench in that plan.
It turns out that PMI is written in to our contract to remain until the originally scheduled date that we will reach 78% LTV: 8/2022. I called to verify and the rep advised that we could (surprise) pay for an appraisal and get rid of PMI early without the extra payments. I am supposed to get a call next week to tell me what the cost of that would be, since our home values are going up like mad currently. According to our May 2018 Statement of Net Worth our home is worth $88,617. That number comes from Zillow so may not be too accurate, but if it is that means our mortgage is 68% of our home’s value.
My husband is a little nervous about this transaction because it could blow up in our faces and determine that our home isn’t yet worth $78,250 and we will be stuck with having wasted our money on that appraisal and still paying PMI. But, I think it’s worth a shot. Do you have thoughts?
It’s been a week since I last wrote. Since then I have spoken with Quicken’s PMI Removal department and was advised that a home evaluation will cost $200, and that they will be looking at the interior and exterior of the home, counting bedrooms, number of rooms, and looking for any updates.
In order to request the appraisal I need to submit a request in writing, and give my payment over the phone. It will then take 3-5 days to schedule the actual appraisal, and 10-14 days for Quicken to get the numbers. I was advised my home needs to appraise at $81,333 in order to remove PMI.
I have also done a little more research in to how accurate a Zillow Zestimate ® is. One article I read stated that that Zillow’s estimate is within 5% of the true assessed value only 50% of the time. It can be as much as 10-20% difference in the actual value. That article was written by a real estate company, so their opinion could be biased, but I’ve decided to wait until our Zillow Zestimate ® is $95,685 before we move forward with scheduling the appraisal. That will give us a 15% buffer, and it isn’t very far from what the value already is. Plus, I have more updates I would like to do coming up. The first of which will be adding a half bathroom to our basement. We only have one bathroom currently and it’s terrible.
Anyway, now that PMI is getting knocked off the debt snowball, that moves one of my Navient accounts, SL #1 in to its spot.
I have long dreaded when the Student Loans will make it in to the Debt Snowball countdown because they are going to take so long to get rid of. I am worried about debt fatigue.
Also, I have not been participating in my side hustle for about one month so I haven’t been making those extra weekly payments either. If I continue like this, we will have the biggest percentage rate student loans paid off sometime after 2020.
Thank you for reading if you made it this far in to my post! Don’t forget to follow me on Instagram for daily updates on our debt free journey. If you are a follower, you were privy to the PMI drama as it unfolded, and how fun is that?!