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Unread 10-29-2010, 05:39 PM
 
Location: Pasadena, CA
1,029 posts, read 1,665,018 times
Reputation: 729
Default Piggyback vs FHA

Where we live I'd have to save around 80-100k downpayment to get a house with no PMI. I'm just curious of the benefits of piggybacks vs. FHA and paying PMI. I have excellent credit and have a bit over 5% saved right now. I'd consider a 80/15/5 or 80/10/10 or an FHA with PMI.

What's the catch on the piggybacks since you won't be paying PMI? Higher rates? It seems like paying higher rates over 15 or 30 years would be worse off than paying PMI for 5 years or whatever. Most people I've asked so far have said to do a piggyback since I have excellent credit.

I'd like to buy sooner rather than later but I can wait if it is going to cost me. I'm just not sure I can wait to save 20%. Prices are pretty good right now and if I wait to save 20% it might take another 4-5 years. I have over 5% now and could have 10% in maybe 7 months or so.

Can anyone provide any insight?
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Unread 10-29-2010, 09:14 PM
 
Location: Aldie, VA
199 posts, read 306,285 times
Reputation: 89
With an 80/10/5 or 80/10/10, the 2nd loan will have a higher interest rate. You might have trouble finding those products though.

With FHA, you only have to put down 3.5%, but the downside is you have to pay some up front PMI at closing, and you have to pay PMI for minimum of 5 years regardless of if you get the LTV below 80%.

If you can manage 10% down, you might be able to find a conventional loan with PMI, which should go away once the LTV is 80%.

Navy Federal (if you can become a member) has a 100% financing product with no PMI, but you pay a little bit worse rate, and an upfront "funding fee" (read upfront PMI).

There are a number of calculators out there that will compare loans with PMI versus piggyback loans. PMI is generally a waste. Atleast with a 2nd loan the interest is tax deductable.
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Unread 10-30-2010, 06:58 AM
 
153 posts, read 258,870 times
Reputation: 65
I amnew to the whole home buying process myself, so I'm not sure if my advice would be all that great... But I looked at all the calculators out there and did my own research as well. I decided to go FHA. It suited my present situation better. And the MIP is also tax deductible.
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Unread 10-30-2010, 08:14 AM
 
Location: MID ATLANTIC
3,441 posts, read 6,746,542 times
Reputation: 2384
Wow, I just did a flyer for Realtors on this two days ago....I'll try to post some of the info (payment, closing costs, etc) from it later (its on an encrypted thumbdrive that can only be accessed on my work laptop).

But, some info that is not on the flyer........

PMI/MIP (both are the same thing, just different labels, depending upon type of loan): This "insurance" is not always tax deductible. First, there are income restrictions imposed by the IRS, and then, it's deductibility is not a sure thing year-to-year. It use to never be deductible. On an FHA loan, the monthly MI is .9%. That adds almost a full percent to the rate paid. (On a conventional loan w/ a 95% LTV and no 2nd, it's well over). In many cases, the 2nd trust is about the size of a luxury car loan ($40,000 - $60,000 average). Most lenders amortize the payment over 30 years (with a 15 year balloon), otherwise, it defeats the purpose if it's unaffordable. So, when the 2nd is paid in full, the homeowner is left with a sweet payment. Many take their future tax returns (or bonuses, inheritences, etc) and put that money against the 2nd. With today's low rates, it would be a shame to refinance the 1st trust loan down the road.

This is my number one selling product and the numbers sells itself. The underwriting is tougher, with almost no flexibility in the guidelines. But it's definitely better in payment, overall closing costs, and possibly, future tax benefits. I wish I knew of someone in CA to recommend, but definitely ask around.....one name will usually surface over and over.
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Unread 11-01-2010, 09:29 AM
 
210 posts, read 294,377 times
Reputation: 98
Quote:
Originally Posted by gammann View Post
If you can manage 10% down, you might be able to find a conventional loan with PMI, which should go away once the LTV is 80%.
.
Conventional loan has limit too. 2 years limit period.
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Unread 11-01-2010, 05:52 PM
 
Location: Pasadena, CA
1,029 posts, read 1,665,018 times
Reputation: 729
So it's sounding like my best option is to get 10% down and try for a traditional with PMI.
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Unread 11-04-2010, 06:11 AM
 
Location: Plano, Texas
1,667 posts, read 3,883,268 times
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I say your best option is the 80/10/10 loan.
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Unread 11-04-2010, 06:53 PM
 
Location: MID ATLANTIC
3,441 posts, read 6,746,542 times
Reputation: 2384
Quote:
Originally Posted by VictorBurek View Post
I say your best option is the 80/10/10 loan.

Agreed, especially since the deductibility of the MI is decided year-to-year and not always deductible.
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Unread 11-04-2010, 07:18 PM
 
20 posts, read 43,789 times
Reputation: 16
Quote:
Originally Posted by VictorBurek View Post
I say your best option is the 80/10/10 loan.
Are 80/10/10 piggyback loans still commonly available?
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Unread 11-04-2010, 11:45 PM
 
Location: Living on the Coast in Oxnard CA
9,541 posts, read 11,583,281 times
Reputation: 10914
In California their is a Cal HFA program that allows the buyer to put down 1% of the sales price of the home with a second simple interest loan that pays up to 3% of the sales price. The 3% loan can be paid off at any time or you can forgo paying on it at all. If you sell the home that loan gets paid off first though. At the end of the loan term it also comes due.

This is a FHA loan with a California twist. With FHA the borrower would put at least 3.5% down. With the Cal program the second loan is for 3% of the purchase price, the buyer puts down 1% with .5% going toward the down and the remainder going toward closing or escrow costs. Still the borrower will need to pay PMI for at least 5 years and at that time the home value to debt load can be determined to see if the PMI can be retired. Interest on the loan is 3.8795% for 30 year fixed.

Requirements are that you can not have owned a home in the past 5 years, you need a FICA score of at least 620, and you can not make over $120,000 a year for a couple anyway. (Not sure what the income level for a single person would be.)
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