Mortgage Advice (foreclosed, renting, insurance)

[trele6]

So, I am in the process of getting a house built and needless to say I dont have the cash to put down the usual 20%. My broker quoted me $160/month in PMI payments. My question is, I can pay the full PMI upfront for $7k, should I do that or should I put that $7k into the down payment. FYI, adding the $7k into my principle only drops my monthly note about $15, whereas paying the PMI up front will reduce it by $160.

Any thoughts or experiences?

[HoustonPharaoh]

There are different programs I believe where you don't have to pay 20% down. FHA loans only requires 3.5% down for up to $271,000. There are jumbo loans as low as 10% and requires at least 720 credit score.

I would recommend checking with a loan officer. Also you can ask the builder if they have a preferred lender, most of the time if you use their lender, they should cover your title insurance which is usually around 1% of the house value at closing.

My personal opinion is to save the money for the down payment and closing cost. Also try to negotiate with the builder to pay towards your closing costs and not just upgrades

[trele6]

I have plenty of cash for closing and doing a 5% downpayment. I just dont have enough to do 20% down to avoid the PMI payment. My options are to pay the full PMI upfront and never have it in my monthly note which is about $7k, or just pay it monthly and increase my downt payment to about 8% but that doesnt make much of a dent in my monthy payment. I can afford my payments either way, but I am just curious what is better long term investment wise.

[colcat]

I would not pay the PMI all at once. Actually, I didn't even know that it was an option. If you put that money toward your down payment, you will be able to get your mortgage down to 80% much quicker. You can then stop paying for the PMI.

[HoustonPharaoh]

I see. I would recommend sticking with the 5% down and keep the cash for emergencies and pay extra every month whatever you feel comfortable with, it will cut the interest as well in the long run.

I made it before on an excel sheet, if you pay $100 extra a month, it can save you 9 years. In the same time, you can get to the 20% faster and at that point you can even pay$200 more a month. Or whenever you have some extra cash pay it, or make one extra payment every 6 months. Run the numbers and see which one works best for you

[fnh]

Absolutely don't pay the PMI upfront. You only need to pay PMI until you reach 20% equity which can happen sooner than you predict if you make extra payments and/or enjoy home appreciation. Aim to reach that 20% threshold as soon as you can and you will never reach the point where you have paid $7K in PMI. Be sure to request to have the PMI removed when your equity warrants it, don't assume the bank will simply drop it.

[Felixmp]

You also have the option of an 80/15/5 loan if your credit score allows you for that. 1st mortgage is for 80%. 2nd mortgage is for 15% at a higher rate. 5% downpayment. this will avoid pmi.

[73Tele]

Originally Posted by mpgerma

You also have the option of an 80/15/5 loan if your credit score allows you for that. 1st mortgage is for 80%. 2nd mortgage is for 15% at a higher rate. 5% downpayment. this will avoid pmi.

Hello mpgerma,
Would you like please to share those lender to me and probably some others as well?
Thank you in advance,
73Tele

[Felixmp]

73Tele,

Any mortgage broker or lender is aware of the 80/15/5 program. Some offer it and some do not. And in some cases you have to get your 80 with one lender and the other 15 with a different lender. You just have to start calling around. I used LendingTree.com for my last mortgage so you can start with that if you don't have any contacts to start with.

[jtothemak]

Stay renting until you have 20% saved up and avoid PMI all together. Beside if something happens that requires you to sell you could actually get out the house instead of being foreclosed on.