Will I be able to eliminate PMI with a 100% finance 80/20?

Question

I've been told that I must put at least 5% down. Is this true?

Thank you!

Don't answer the question if you don't understand what an 80/20 loan is.

Answer 1

On a conventional loan, Private Mortgage Insurance will be applied on all mortgages with less than 20% down. The common way to avoid PMI is an 80/20 loan, in the case of putting no money down. The issue is that you may have a second set of costs on the 2nd trust and a higher rate, depending on your credit score. You may want to ask your lender if they offer Lender Paid Mortgage Insurance. You take a slightly higher rate, but avoid PMI. Not a big deal because you deduct mortage interest anyway. However, PMI is finally deductable on your taxes, but so far only for 2007 and on loans originated in 2007. No guarantee Congress will pass the bill again. Also, once you hit $100,000 Adjusted Gross Income you become limited in how much you can deduct, with total phase out of deductibility at $109,000 AGI. Also, on an FHA loan you pay monthly PMI, as well as a 1.5% upfront PMI funding fee. VA loans do not have PMI, but an upfront funding fee.

Finally, PMI is never removed from an FHA loan under any circumstance unless you refinance or pay it off in full. Conventional lenders typically will not accept a new appraisal. They will require you to base the 20% equity off of the appraisal used to secure the mortgage, meaning you really need to pay the principle down yourself. I know of no lenders that will accept a new appraisal. They would rather you refinance.

Answer 2

You've gotten good, solid advice so far. The HUD web site has information, as does www.PrivateMI.com.

Don't be afraid of mortgage insurance on your loan. As the other posters have noted, things have changed drastically when it comes ot financing 100% of the purchase price (which is what you're doing with an 80/20) and PMI is a better choice more often than it used to be.

Even with an 80/20, you pay a much, much higher rate on the 20 because of the high default rate on those loans. Many lenders use part of that higher rate to actually purchase insurance on that loan. Plus with the 80/20, you will be paying the higher interest rate on the second for years and will have trouble if you ever want to take equity out of the home on down the line. Nobody does A-Paper 3rd mortgages.

If your goal is to eleminate PMI, then you will probably wind up with a bad loan. If your goal is to finance 100% or the purchase price, you will examine all options, including PMI, and make the choice that works best for you in the present situation.

Answer 3

Yes indeed. That is about the only reason to get an 80/20 loan. Keep in mind the second loan is going to be at a higher rate than you'd probably like. Don't be surprised if it's 12% or more on the junior loan.

Also keep in mind that PMI was recently made tax deductable.. which doesn't hurt so much now.

Many lenders are discontinuing the 80/20 loans because of this. They are offering 100% one loans with the PMI built into the loan or just letting people pay the PMI and write it off.

Answer 4

An 80/20. The activity on the two the 1st (80%) and the 2d (20%) mortgages may be tax deductable for you. PMI isn't tax deductable and with the present fallout of the subprime loan industry, PMI money have long gone for the duration of the roof even for debtors with stable credit. while you're no longer careful the further rate of PMI would desire to effectively upload a number of p.c. to the activity cost you pay.

Answer 5

I think it depends on the type of loan you're trying to get. If it's backed by Fannie Mae or FreddieMac, I think you are required to put some money down regardless of what type of financing you have.

An 80/20 loan though is a great way to avoid paying costly PMI. I recommend it if you can handle the downpayment.

Answer 6

No, you won't have PMI with an 80/20. The 80/20 was basically designed for people that need 100% financing, but cannot qualify for it, so that is to eliminate the 5% down. You may have some closing cost to pay, but it won't be as much as the 5% down would be.

Answer 7

Looks like you're being told a whole bunch more here. Too many opinions can sure confuse someone. So instead of me giving you my opinion why don't you go and see what the government says it's the truth, afterall it's them that make the law.
HUD Private Mortgage Insurance (PMI) Information: http://www.hud.gov/offices/hsg/sfh/res/respapmi.cfm
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