Quote:
Originally Posted by dman72
Good question. The loans I was being quoted were conventionals with 5 and 10% down, so obviously they are giving something other than 80% loans with 20% down...so you're right.
What I think you used to be able to do was avoid PMI by taking out a (much) higher interest home equity loan as the 20%..at least you'd get the tax benefit. I'll have to ask the guy.
We are avoiding PMI because of a special circumstance (ie a connection), but without it I'd seriously reconsider buying until we had the full 20% saved up, which could take another 12-15 months for us. The PMI hit is just absurd. WTF is PMI anyway? If you don't pay the loan..the take the house back, right.  That's more than enough insurance. |
We really need to be clear on whether we're talking HUD (i.e. FHA) or conventional. Because the way to "avoid" MI hasn't changed... You take out a primary mortgage for 80% of the appraised value and then you take a second mortgage (i.e. infamous HELOC) for the shortfall in your downpayment to get to that 80% LTV. These are commonly called 80/10/10 where 80% is the first, 10% is the HELOC, and 10% is your cash downpayment. Yes, you will pay a higher interest rate on the HELOC. But, with this scenario the primary lender will not require MI since they're at 80%. Similarly, products for 80/15/5 exist (5% down)... This is conventional. If you were to go FHA, you can get in for as little as 3.5% cash down, pay 1% fee that you can put back into the mortgage, and pay MI for 5 years (even if you reach 80% LTV).
In the end, straight up you will generally do better interest rate wise for 30 years in these scenarios with FHA. You can buy down the rate on conventional, but then you need to consider the fee to FHA in comparison. Most of this gets thrown out the window if you talk 15 year loans.
Before someone goes nuts, I'm generalizing here... But I was going for the high points and not the finer idiosyncrasies. You should work with several mortgage guys to make sure they are keeping each other honest.
"Taking a home back" is extremely expensive for a bank, that's why they force you to take out the MI.
Quote:
Originally Posted by scottzilla
Not sure why this is a huge revelation for some. PMI was a huge money maker for the banks (Who claim they don't make money from it) throughout the entire housing bubble. Mortgage lenders liked you to roll pmi in to 80/20 loans so you pay pmi for 20 years. Nice folks. 
I paid pmi for a total of 4 years; 2 on my FHA and 2 on my conv. refi. My house gained in value enough that I was able to drop it on request. They tried to fight me but I got them to drop it by paying a $300 appraisal fee.
PMI is not new and has been a part of buying for a long, long time.
Prior to the housing boom it took on average 14 years to drop pmi on LI. |
Mortgage Insurance is not paid to the banks... it's paid to an insurance company.
Quote:
Originally Posted by dman72
It's not a revelation that it exists, it's how much they are stealing via it now. The last time I was looking for places I was hearing about $150 a month PMI. Almost $400 a month now?
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Just like with any insurance... claims go up, prices go up. You can thank all the foreclosures for that.
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