Mortgage Insurance...?

Question

Yesterday when i called Mortgage company ( Countrywide) to get preapproval letter, he said i have to take Mortgage insurance since i am not putting 20% down payment. Then he suggested me to take out more than one Loans and i can get around the Mortgage insurance.....i smell something fishy here...Can anybody suggest me what are the cons of taking more than one loan? I asked the same question to him but he replied there is no cons except writing out more than one check ?

Is Countrywide good company to take mortgage ? If not can you please suggest some ?

Thanks

Answer 1

What he is talking about is taking a second lien loan to cover the downpayment. You are on the hook for 2 loans, so make sure you can service them. I can't beleive they are still doing that, given all the mess that they have caused. Generally a lot of those types of loans have defaulted, and one would have thought that they would be limiting the use of them. There is no con if you can service the loans, while I think PMI is paid for completely at closing.

Answer 2

Countrywide is a good mortgage company but have run into financial trouble lately with the huge asset write-downs they have taken because of the subprime mortgages they have on their balance sheets. They should come out of it and even if they don't they will just sell your mortgage to another mortgage company. It shouldn't affect you except where you send your mortgage payments. Here is an example of the kind of loan they are talking about: you put down 10% and then take out a home equity loan, backed by the 10% you put down, for the additional 10% you need to get you to 20% to avoid mortgage insurance. My spouse and I did it but we were able to pay off the home equity line fairly quickly. It saved us mortgage insurance and interest on home equity loans is tax deductible. There is nothing hidden here, it's pretty straight forward.

Don't sign a loan document that has a prepayment penalty. There are plenty of mortgage companies out there who don't have prepayment penalties.

Answer 3

PMI (Private mortgage insurance) is usually required when a person puts down less than 20% of the purchase price.

Some people have been taking out loans for 80% of the purchase price, then a personal loan for the 20%, thus paying full amount for the loan and not having to pay PMI.

The pitfall is that you have two loans to pay off and PMI is only required to be carried until 80% of the home's value has been paid off (for example - if the house appreciates, you could get a new appraisal then possibly get PMI dropped, depending on the appraised value). So you could be paying a second loan for a long time versus waiting a few years, getting the home reappraised, then getting PMI dropped.

Countrywide is ok. I am having alot of success with RMC Vanguard .

Answer 4

Good idea to bundle the insurance. I would have thought you would have to have this coverage in place before you could close on the home. If you get a home ins. quote that does NOT sound reasonable, considering shopping the bundled service to other carriers. They will ask you basic stuff like sq footage, # bedrooms, construction materials, proximity to fire station, and zip code, and everything is pretty much calculated off standard formulas. They don't require additiona inspection, although I have been told that they may do "drive-bys" to make sure that people aren't taking out fraudulent policies (like on an empty lot or a shack or something). Ask about the deductible, ask about how they calculate the "contents", and about terms of homeowner's liability. A good agent will explain all this to you and once you get the spiel from one, you should be able to compare apples to apples on other policies. If you live in a flood plain, you will have to have separate coverage for that. States like LA post-Katrina are very picky on this now and premiums are therefore higher. You may want to do some research to see which insurance companies have been LEAST affected by Katrina claims (and maybe now the CA wildfires) as they will possibly be more reasonable on rates for new policies. Good luck!

Answer 5

That is a subprime loan scenario.

Legal - yes. Ethical - maybe. Good idea - perhaps not.

You may wind up paying more in interest than you would if you paid the PMI. It also depends on how much downpayment you have and how long it will take you to get to 20% equity when you can then petition the PMI to be dropped.

If you take out more loans then you'll have more outstanding debt and it may hinder you from getting a car loan or equity loan and bring down your credit score.

I've never used Countrywide so I have no opinion on them.
http://www.us.bbb.org/WWWRoot/SitePage.aspx?site=113&id=46a6a9cd-5402-454e-9476-e4df22e6f371
Is from the better business burea website and may be of help to you.


I go for a local bank or credit union because they are less likely to sell your mortgage to Outer Mongolia and if something does go wrong then you can go and talk to someone face-to-face and get it taken care of quicker.

Answer 6

Hello,

Lenders require borrowers to put down either 20% down payment or to finance part of that 20% by getting another loan. They call this a piggyback loan. Everything you mention is fine and legitamate and any other lender will require the same. If you can't put down 20%, you either pay mortgage insurance (which protects the lender in case you don't pay your mortgage) or you take out two mortgages so the bank has more of your house to go after if you do not pay them back.

Answer 7

don't panic. Totally a very common practice

People take 2 loans out to avoid paying mortgage insurance.

They usually do an 80% 10% 10%
10% down payment
10% second mortgage

then use them for a %20 down payment on the actual main mortgage.... of 80%

with no cash down... you'd do an 80/20
i have one.... it's fine.

You can expect a higher interets rate on the smaller loan... in my case the 20%
you can also expect a possible pre-payment penalty on the second one.....

either way.. it works out as less money out of your pocket each month if you do an 80%/20% loan over a single 100%loan with Mortgage Insurance....

good luck'

Answer 8

My wife and I just purchased a home and went through the same thing.

My understanding of it is this...

If you finance more than 80% on a primary mortgage, you have to pay the mortgage insurance.

What we did was an 80/10/10. We put 10% down, had 80% in a primary mortgage at a low fixed rate (5.875%) and the remaining 10% in a variable rate (prime +2%) home equity line.

Hope this helps.

Answer 9

The trick is that the interest rate on the second loan will be higher. The amount of extra interest may actually be more than the PMI especially if the second loan is adjustable.

Answer 10

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