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Old 04-24-2011, 08:20 PM
 
1 posts, read 18,476 times
Reputation: 11

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I am purchasing a house using a 203k loan and the lender (Wells Fargo) requires a 15% contingency fund of the purchase to be set aside in case it is need for repairs (House costs 40k and will be putting 80k into in through the mortgage). I am putting 3 1/2 percent down at closing.

I am told if the contingency is not needed, then it will be used to pay down the principle. I was also told that per the contract (haven't signed it yet), I will have a PMI until the mortgage is at 80% AND I have had the mortgage for 5 years.

From what I have read through the Home owners Protection Act, if reading it right, I should not have to wait 5 years if I get the mortgage to 77% of original value.

Since I won't be using the contingency and will have 3 1/2% down, paying extra in principle will put me at the 78% threshold in under 2 years.

My question is, why would I have to wait 5 years to get rid of the PMI and has anyone else dealt with this that might be able to shed some light on the subject?

Sorry for the long post but trying to figure things out. All help is greatly appreciated!

Thanks much,

Jimmy
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Old 04-24-2011, 10:14 PM
 
Location: Long Island
9,222 posts, read 19,155,993 times
Reputation: 4961
Quote:
Originally Posted by wolterjwb View Post
I am purchasing a house using a 203k loan and the lender (Wells Fargo) requires a 15% contingency fund of the purchase to be set aside in case it is need for repairs (House costs 40k and will be putting 80k into in through the mortgage). I am putting 3 1/2 percent down at closing.

I am told if the contingency is not needed, then it will be used to pay down the principle. I was also told that per the contract (haven't signed it yet), I will have a PMI until the mortgage is at 80% AND I have had the mortgage for 5 years.

From what I have read through the Home owners Protection Act, if reading it right, I should not have to wait 5 years if I get the mortgage to 77% of original value.

Since I won't be using the contingency and will have 3 1/2% down, paying extra in principle will put me at the 78% threshold in under 2 years.

My question is, why would I have to wait 5 years to get rid of the PMI and has anyone else dealt with this that might be able to shed some light on the subject?


Jimmy
If you're getting an FHA loan - 203(k)s are FHA loans - then the 5 year MIP applies, even with equity of 20%+++; those are the conditions, no way around it.

The contingency fund is also standard, because apparently the experience has been that in many cases estimates run over, so this assures that the job can be finished. And yes, whatever you don't use will be applied to principal, which doesn't lower your monthly payment but does shorten the lifespan of your loan AND increases your equity. BTW, the contingency is not a Wells Fargo requirement specifically - it's a condition of the loan.

Am about to close on a 203(k) loan for one of my buyer clients and had to hold their hand through the process. Same conditions, different lender - all because the loan is 100% guaranteed by the government; it's also assumable if the next buyer qualifies under FHA guidelines.
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Old 04-24-2011, 11:23 PM
 
Location: Laguna Niguel, CA
768 posts, read 4,034,321 times
Reputation: 456
Once you have the 20% equity, you can refinance into conventional and ditch the monthly mortgage insurance that way.
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Old 04-25-2011, 12:04 AM
 
Location: Long Island
9,222 posts, read 19,155,993 times
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Originally Posted by ShanetheMortgageMan View Post
Once you have the 20% equity, you can refinance into conventional and ditch the monthly mortgage insurance that way.
As long as the closing costs make it worthwhile - don't you agree?
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Old 04-25-2011, 02:02 AM
 
Location: Laguna Niguel, CA
768 posts, read 4,034,321 times
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As well as the new interest rate too.
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Old 04-25-2011, 12:25 PM
 
Location: Long Island
9,222 posts, read 19,155,993 times
Reputation: 4961
Quote:
Originally Posted by ShanetheMortgageMan View Post
As well as the new interest rate too.

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Old 07-25-2011, 07:47 AM
 
1 posts, read 18,024 times
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I was told you dont have to refinance to drop the MIP. All you need to do is get it appraised. Is this true or do you have to refinance after 5 years in order to drop the insurance?
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Old 07-25-2011, 08:39 AM
 
Location: Atlanta, GA
105 posts, read 261,157 times
Reputation: 108
After you meet both criteria (paying MIP for 5 years AND the loan hits required ltv) your mortgage payment should automatically calculate without the mip. You do not need to refinance your mortgage for this to happen. For the most up to date information, please check with your lender's guidelines and FHA's website.
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