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Is the original value based on the appraised value?

Posted on: 17th Jun, 2010 03:12 am
I'm trying to find out the original value of my property. Is it the purchase price or appraisal value at the time of purchase? Here are the details… I purchased a property for a purchase price of $190,000 but my house appraised for $203,000. The loan balance is currently $159,900.

My lender told me that I've a 85.4% loan-to-value ratio. He said that the loan to value ratio is based on the purchase price i.e. $190,000. But my understanding is that it should be based on $200,000 which is the appraised value of the property. Can anybody help me understand this?
Most lenders will base your LTV ratio on the lowest between the appraised value and the purchase price. Because the purchase price was below the value, the purchase price was used. Personally, I don't understand the logic behind this practice other than another way of minimizing risk by not relying on inflated appraisals. Of course, what happens if you find a genuinely "good deal" on a house? It seems unfair to base your LTV on the purchase price if you are buying a property at a huge discount, especially if the lender is requiring you to pay for mortgage insurance when you really shouldn't have to.
Posted on: 17th Jun, 2010 08:18 am
Hi Marlon,

I agree with what Benjamin has said.

The lenders will base your loan-to-value ratio on the amount which is lowest between the purchase price and the appraised value. In your case, the purchase price of the property was lower than the appraised value. So, your loan to value ratio is based on your purchase price.

In case, you've a PMI and want to cancel it, then you should have 22% equity in your property in order to do so. However, when you've 20% equity, you can request your lender for the cancellation of PMI. The lender may consider your request if you're current on your mortgage payments.

Take care.
Posted on: 18th Jun, 2010 02:50 am
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