Should I put 20% down or just pay the PMI?

[shmoov_groovzsd]

Originally Posted by volk2k

Just wanted to caveat this with the statement that you can only remove the PMI on an FHA loan after 5 years.... even if you hit 78% 1 month later

So keep this in the back of your mind...

And even after you remove your PMI, your "required" Principal/Interest payment will still be higher than if you had put down down 20% upfront....unless your bank allows you to re-ammortize or rebalance your account of course...find out.

Great! This is true! Thanks for further clarifying for the OP volk2k!

[nmb30]

Originally Posted by mi26

I'm in the process of finding a starter house. My price range is up to 175K, but I am looking more up to 165K range. Taxes are around 4-5K a year in the areas I am looking. I have 20% for these homes. Should I put 20% down or just pay the PMI? What would you suggest? I'd like my monthly payments as low as possible.

It all depends on your short and long term goals.

I would caution anyone buying right now to really think about things before committing to putting 20% down because prices are likely to continue dropping for the foreseeable future which means you run a serious risk of losing that money.

Lets take a look at the actual payment differences.

My pricing today for each option based on a 720 score is 4.125% for FHA and 4.375% for conventional.

On a FHA loan with just 3.5% down, here is what you can expect for a monthly payment minus taxes and home owner's insurance.

$165,000 X 3.5% =$5,775 for your down payment which gives you a loan amount of $159,225 + FHA's upfront mortgage insurance premium of 1%($1592.25) = $160,817.25.

$160,817.25 @ 4.125% gives you PI payment of $779.40 +monthly MI of $151.39 = $930.79

On a conventional loan with 20% down, here is what you can expect for a monthly payment minus taxes and home owner's insurance.

$165,000 X 20% =$33,000.00 for your down payment which gives you a loan amount of $132,000.00.

$132,000.00 @ 4.375% gives you PI payment of $659.06.

So let's look at the difference in payment and your break even point.
$930.79 - $659.06 = $217.73 per month

Now take $33,000 - $5775 = $27,225 and divide by $217.73 to get a break even point of 125.04 months or 10.4 years.

This means you would need to stay in the loan for just over 10 years to recoup your down payment based on the monthly savings.

I would seriously consider keeping your money in some type of interest bearing account that gives you easy access in the event you need it as opposed to it being tied up in a home as equity.

Just my 2 cents

[Zippyman]

One thing I haven't seen mentioned is that the FHA loan is assumable -
the current climate indicates that interest rates aren't going anywhere for a while, but it was a factor for my wife and I a couple of years ago - and it could be again.. It was a very big deal in the 1980's...

Being able to offer a future buyer a ~4% interest rate on the unpaid balance of your mortgage + low closing costs (no ufmip - the OP would have paid that, no appraisal, etc) could be VERY persuasive if interest rates jump in a few years...

Don't forget, you can put more than 3.5% down with FHA as well..

[warriorfan63]

Originally Posted by nmb30

It all depends on your short and long term goals.

I would caution anyone buying right now to really think about things before committing to putting 20% down because prices are likely to continue dropping for the foreseeable future which means you run a serious risk of losing that money.

Lets take a look at the actual payment differences.

My pricing today for each option based on a 720 score is 4.125% for FHA and 4.375% for conventional.

On a FHA loan with just 3.5% down, here is what you can expect for a monthly payment minus taxes and home owner's insurance.

$165,000 X 3.5% =$5,775 for your down payment which gives you a loan amount of $159,225 + FHA's upfront mortgage insurance premium of 1%($1592.25) = $160,817.25.

$160,817.25 @ 4.125% gives you PI payment of $779.40 +monthly MI of $151.39 = $930.79

On a conventional loan with 20% down, here is what you can expect for a monthly payment minus taxes and home owner's insurance.

$165,000 X 20% =$33,000.00 for your down payment which gives you a loan amount of $132,000.00.

$132,000.00 @ 4.375% gives you PI payment of $659.06.

So let's look at the difference in payment and your break even point.
$930.79 - $659.06 = $217.73 per month

Now take $33,000 - $5775 = $27,225 and divide by $217.73 to get a break even point of 125.04 months or 10.4 years.

This means you would need to stay in the loan for just over 10 years to recoup your down payment based on the monthly savings.

I would seriously consider keeping your money in some type of interest bearing account that gives you easy access in the event you need it as opposed to it being tied up in a home as equity.

Just my 2 cents

Your rates are off unless "things" have changed since I last shopped for a mortgage (within' the last year) the FHA "rate" was about .25% HIGHER then the 20% down conventional loan.

[SmartMoney]

I would recommend you look for an 80/10/10 loan or an 80/15/5. Guaranteed appreciation is no longer a given. In a world of uncertainty, I would not want all of my assets in a place that could be tough to get back. The combo loan removes the PMI, which is money down the drain (especially if you make too much to deduct it or the rest lose that deduction).