How can I get around paying PMI (primary mortgage insurance) on a new house and still get a good loan rate?

Question

Most PMI are mandatory on loans if I do not put down 20%. I have about 15-18% in the bank and am wondering if I can get around this somehow through closing or other? I am aware of 90/10 type loans but understand that this gets me a much worse interest rate which is not desireable. thanks

Answer 1

You're right, PMI (Private Mortgage Insurance) is required on "conventionally" financed loans where the LTV (loan to value) is greater than 80%. One option is to get "piggy back loans" that way you avoid the PMI charge and the other is to simply accept the additional insurance.

I'm not a big fan of taking the Piggy Back option, because, as you stated, you pay a premium rate for 2nd mortages. PMI is ONLY mandatory for the first two years. If after the two year period your loan to value ratio falls below (in most cases) 80% loan to value, you can petition the morgage company (with a formal appraisal) to have the cost eliminated. With a second mortgage you cannot erase the costs of future interest without paying the expense to refinance all loans which can result in thousands more in costs.

In your situation I would advise against taking a piggy back loan. PMI is calculated by risk levels; the lower your down payment, the higher premium of PMI. Since your LTV will be very close to 80%, your PMI factor should be close to .15% to .22%. This translates a monthly cost of roughly $25.00. While this is not tax deductible, it will be significantly less than the interest (and maybe the cost of refinancing later) on a 2nd mortgage. Piggy Back loans are good if and only if you have a very high loan to value and you need the additional tax write-off.

Insofar as your first mortgage is concerned, the rate and/or costs will NOT be influenced by whether you have one or two loans. If you're being told this, find another broker!

Another note: If you plan on shopping around, do NOT release your social security number: each time someone pulls your credit, your credit risk score increases which will increase your costs. Just verbally give them your credit score.

Answer 2

You wouldn't do a 90/10 loan-- that makes up 100% and you have 15% down.

You could do an 80/5 loan if you wanted too-- the 5% portion would be quite small.

However, I would just get a single loan for 85% because of less closing costs, and then if your house appreciates even just a little bit (enough to mean you only have 80% owing on it) you send an appraisal to your bank and they drop the PMI.

Also-- check with Bank of America. They dont charge PMI at all in my state.

Answer 3

Shop around w/ mortgage reps. There are actually new programs out there for up to 100% financing w/ no PMI. Another interesting note I heard recently is that the IRS is allowing home owners to take a deduction on PMI, which was not possible before. What area are you in? I'm in NJ and work w/ some great mortgage reps. Let me know.

As for the credit comment someone made before, if you are shopping around for a home loan or auto loan you shouldn't get your credit checked more than 2-3 times a month or your score could be impacted.

Answer 4

I recently got a loan, and went the 90/10 route. Actually it was 80% of value on the first loan, and 10% on the second. I plan to pay off the second as fast as I can. I avoided PMI and escrow. Its all a matter of negotiation. Call lots of different brokers and a few banks, and you'll get lots of different deals proposed. Tell the brokers that you want to avoid PMI and see what they offer.

Answer 5

you can get a 80/20 loan. that will avoid it. but if you have that much to put down you maybe able to work something out with the mortgage company. shot me an email if you would like my help.

Answer 6

whenever i post a question, even if it is the easiest one, nobody can provide me a good informed answer . What happened to people who really make the effort to answer??

Answer 7

Sorry I don't know about this