Posted on: 16th May, 2011 10:14 am
How does PMI work. Does the 20% down need to come from the sale price of the house such as
100K house/sale price
you need 20K down?
or
House appraised for 100K
Sale price is 90K
10K down payment with 80K loan?
100K house/sale price
you need 20K down?
or
House appraised for 100K
Sale price is 90K
10K down payment with 80K loan?
Both examples are correct, except that first option represents 20% down. Purchase a home for 100k, using 20% down, you would put 20k down and obtain a loan for the 80k.
If home appraises for 100k, and your sales price is 90k, then you still would have to put the 20% down. or 18k of the 90k sales price.
PMI is the mortgage insurance required on FHA loans and conventional loans when you do not put 20% or more down. If you put the 20% down, then you are not required to buy mortgage insurance.
The PMI is to protect the lender in case of borrower default. There fore, if you show that you are a good borrower and have sacrificed money you put down, the lender feels that you are less risky, as you have more $ invested in the property, as opposed to 100% financing.
If home appraises for 100k, and your sales price is 90k, then you still would have to put the 20% down. or 18k of the 90k sales price.
PMI is the mortgage insurance required on FHA loans and conventional loans when you do not put 20% or more down. If you put the 20% down, then you are not required to buy mortgage insurance.
The PMI is to protect the lender in case of borrower default. There fore, if you show that you are a good borrower and have sacrificed money you put down, the lender feels that you are less risky, as you have more $ invested in the property, as opposed to 100% financing.
Chris,
Thanks for the response.
My follow up question is can pmi ever be taken away due to a new appraisal after a couple of years.
For instance The 100K house is bought for 90K thus meaning the lender has to pay PMI. Say in 2 years the house is appraised for 120K. Does PMI go away then or will it still not go away until that other 10K on the loan is paid?
Thanks for the response.
My follow up question is can pmi ever be taken away due to a new appraisal after a couple of years.
For instance The 100K house is bought for 90K thus meaning the lender has to pay PMI. Say in 2 years the house is appraised for 120K. Does PMI go away then or will it still not go away until that other 10K on the loan is paid?
The lender and the borrower have responsibility watching the property and the equity in the home. Yes, once the property has reached the cut off of 20% equity, then you can ask the lender to discontinue the PMI. They might want an appraisal or another tool to check on the value. It would take you over 10 years to pay down the mortgage. Actually on a 30 year loan, most of the payments will go to interest for the first half of the loan. Then you will accelerate the principle payments.
Chris
Thanks again..
My asking this is that I'm looking to buy a house that appraises for 168K
The sale price is 150K and I have 17K to put down. I was trying to see if I was going to avoid PMI or have to pay. From my understanding I would have to pay PMI. Correct? My second question aimed at getting a new appraisal in a year or two to get the PMI taken off. Could I get your take on this as a possible idea or am I way off base. Thanks
Thanks again..
My asking this is that I'm looking to buy a house that appraises for 168K
The sale price is 150K and I have 17K to put down. I was trying to see if I was going to avoid PMI or have to pay. From my understanding I would have to pay PMI. Correct? My second question aimed at getting a new appraisal in a year or two to get the PMI taken off. Could I get your take on this as a possible idea or am I way off base. Thanks
What you would want to do in your scenario, is look at both FHA and Conventional. Do all the math, on rates, closing costs, down payments, PMI, payments etc, and see which is better. Since you don't have the 20%, take the option that uses the lesser of your cash for closing and the lowest monthly total payment. For FHA, the PMI is required for 5 years, period. For the appraisal, you would need to see what your specific lender required. But as long as you are on top of the market, you should be able to work with the lender to remove the PMI .
Chris,
Thanks so much for your insight. I will be sure to ask my lender what my best options are. Your help is much appreaciated.
Thanks so much for your insight. I will be sure to ask my lender what my best options are. Your help is much appreaciated.
hi bucknuts:
a couple items before i get into a few options:
pmi is private mortgage insurance, which is different from fha mortgage insurance. in general, pmi is more flexible, with better rates for better loan-to-values, higher credit scores, etc. fha mi is less specified for the individual scenario (although it does have a few variations.)
you have a few options to minimize your downpayment:
also, loan-to-value (ltv) is calculated on the lower of the purchase price and appraisal value on a purchase. when you refinance, it is calculated based on your new appraisal.
1) you can do an fha loan (at more than 80% ltv) and then refinance into a conventional loan in the months after you settle to remove the mi.
2) you can do a conventional loan with pmi and refinance later to do the same.
3) you could do a conventional loan with lpmi (lender paid mi). under this scenario the lender charges a slightly higher rate, but you do not have monthly mi to pay. you could refinance this in the months after the loan closes.
4) you could do an 80/10 or 80/5 loan. this is a first loan at 80%, with a second loan of 10% or 5%, so that your downpayment would only be 10% or 15%. this would have no mi. this could also be refinanced later if you needed to, though you might not need to.
i'd be happy to discuss this more with you if you like.
good luck.
[email address deleted as per forum rules. thanks.]
a couple items before i get into a few options:
pmi is private mortgage insurance, which is different from fha mortgage insurance. in general, pmi is more flexible, with better rates for better loan-to-values, higher credit scores, etc. fha mi is less specified for the individual scenario (although it does have a few variations.)
you have a few options to minimize your downpayment:
also, loan-to-value (ltv) is calculated on the lower of the purchase price and appraisal value on a purchase. when you refinance, it is calculated based on your new appraisal.
1) you can do an fha loan (at more than 80% ltv) and then refinance into a conventional loan in the months after you settle to remove the mi.
2) you can do a conventional loan with pmi and refinance later to do the same.
3) you could do a conventional loan with lpmi (lender paid mi). under this scenario the lender charges a slightly higher rate, but you do not have monthly mi to pay. you could refinance this in the months after the loan closes.
4) you could do an 80/10 or 80/5 loan. this is a first loan at 80%, with a second loan of 10% or 5%, so that your downpayment would only be 10% or 15%. this would have no mi. this could also be refinanced later if you needed to, though you might not need to.
i'd be happy to discuss this more with you if you like.
good luck.
[email address deleted as per forum rules. thanks.]
Which county state is the property located and do you know what your actual credit scores are?
Also, it sounds like you have already selected a lender. With so many variables between loan types/rates/fees and options for mortgage insurance, you should be getting quotes from several sources and running a comparison before deciding where to go for the loan. It could end up saving you quite a bit by doing so.
Also, it sounds like you have already selected a lender. With so many variables between loan types/rates/fees and options for mortgage insurance, you should be getting quotes from several sources and running a comparison before deciding where to go for the loan. It could end up saving you quite a bit by doing so.