Opinion Needed: Mortgage Option (PMI, loan, interest rate, approve)

[Hybrid AWD]

Long story short, my girlfriend is buying a house (I already own one) and I've been helping her with the process since this is her first go around.

Being that she is a first time home buyer here in Virginia there are some pretty decent options available. Here is the breakdown of everything:

The house is a short sale with 2 lien holders. Agreed selling price is $260,000 + $5,000 towards closing costs.

Originally the selling agent said the closing date would be Dec. 31st and now the 1st lender is requesting Oct. 11th. (We guess they want to get rid of it asap). We're going to counter with Oct. 31st to avoid paying the interest for those 20 days.

On to the mortgage options:

Option #1: VHDA 3% down ($7,800) + No PMI loan. The rate is 5.375%

Option #2: VHDA 5% down ($13,000) + PMI. The rate is 4.675%

The house assessed for $300,000 the last two years so if the appraisal were to come back that the house is worth $300,000 (fingers crossed) the 80% LTV mark would be $240,000. We would be $7,000 shy of being able to request PMI to be removed if we went with the 5% down loan. If we had to wait until the 78% mark ($234,000), we'd be $13,000 shy. Either way we strongly feel that we could have it removed within 2 years.

The tax rate in the city is 1.15%

Option #2 Runthrough: Lower interest rate but higher downpayment req'd & PMI
Using the 5% down loan ($13,000) + PMI ($121/mo) and appraisal at $300,000.

Loan Amount = $247,000
Down payment = $13,000
Interest Rate = 4.675%

Looking at an ammorization schedule we would hit $240,000 (80%) owed in the 22nd month assuming we don't pay extra. If we had to wait until the 78% mark ($234,000) it would put us at the 39th month.

The PMI estimate from the GFE is $121/mo.

22 months x $121 = $2662
39 months x $121 = $4719


Total interest paid for the life of the loan = $208,011.61



Option #1 Runthrough: Higher interest rate but lower downpayment and NO PMI
Using 3% down loan ($7,800) and house appraises at $300,000.

Loan Amount = $252,200
Down payment = $7,800
Interest Rate = 5.325%

Total interest paid = $256,209.09

__________________________________________________ ____

So now you see the options but here is the curve ball that is making it more difficult to choose.

With the loan option #1 @ 5.375% we can buy 2 points ($5044) which would drop the interest to 4.875%. We plan on staying in the house for 6+ years so the payoff on points is there. Does this sound like the better option?

Loan Amount = $252,200
Down payment = $7,800
Interest Rate = 4.875%

Loan #1 with 2 points ($5044), 3% down ($7800) with a rate of 4.875% and NO PMI brings our closing costs in at $12844. Total interest paid over the life of the mortgage would equate to $228,278.73




If I have lost anyone, I'm sorry However any advice would be great on what you would do.

[Aggiebuttercup]

Are you able to get rid of PMI as soon as you hit the LTV mark under option 2? Some programs require PMI to be paid for a minimum amount of time.

To get the PMI removed, will the lender require a new appraisal to reflect the value at the time it's removed, or will they go with the initial appraisal?

Would your opinion of the two change if a) the appraisal comes in lower or b) you end up paying PMI longer than anticipated?

[Hybrid AWD]

Originally Posted by Aggiebuttercup

Are you able to get rid of PMI as soon as you hit the LTV mark under option 2? Some programs require PMI to be paid for a minimum amount of time.

To get the PMI removed, will the lender require a new appraisal to reflect the value at the time it's removed, or will they go with the initial appraisal?

Would your opinion of the two change if a) the appraisal comes in lower or b) you end up paying PMI longer than anticipated?

Yeah I verified with the lender that it in fact can be removed. From my understanding the LTV is based on the original appraisal value. I could be wrong on this though but I swore that is what I read.


If the appraisal comes in much lower, say $275,000 then it most likely would change my outlook on which to go with.


I based PMI payments an appraisal of $275,000 and that puts us paying PMI for 7 years which turns out to be $10,000. That really doesnt make it that much cheaper (in the long haul) than the 3% loan.


I guess the biggest benefit is that the lower monthly payment.

[scolls]

I work in the mortgage servicing department and have handled PMI related issues. It's really up to the investor of the loan and not the servicer (bank). I never trust brokers regarding PMI. They seem to tell customers anything about PMI to get them the loan. It would be helpful if you post what loan types they are (FHA, Conventional)

[Hybrid AWD]

Originally Posted by scolls

I work in the mortgage servicing department and have handled PMI related issues. It's really up to the investor of the loan and not the servicer (bank). I never trust brokers regarding PMI. They seem to tell customers anything about PMI to get them the loan. It would be helpful if you post what loan types they are (FHA, Conventional)

Both loans are through the VHDA since this is a first time home buyer situation.

One loan is the "new" 3% down, NO PMI loan that is available through VHDA.

The 5% down loan is also VHDA but I believe it's a conventional loan, I'll double check tonight to make sure.

[scolls]

Not familiar with VHDA. It ultimately depends mostly on investor. Fannie Mae and Freddy Mac have certain guidelines about removing PMI. Ginnie Mae (FHA) is a different animal. I typically advise people don't expect to have PMI removed early.

A quick look at the VHDA and I do not see exactly the investors on the loan. They seem pretty vague. If it is VHDA that is also the investor than it would completely change the guidelines for removing PMI.

[hml1976]

Originally Posted by Hybrid AWD

Yeah I verified with the lender that it in fact can be removed. From my understanding the LTV is based on the original appraisal value. I could be wrong on this though but I swore that is what I read.


If the appraisal comes in much lower, say $275,000 then it most likely would change my outlook on which to go with.


I based PMI payments an appraisal of $275,000 and that puts us paying PMI for 7 years which turns out to be $10,000. That really doesnt make it that much cheaper (in the long haul) than the 3% loan.


I guess the biggest benefit is that the lower monthly payment.

That's what we were told as well and it turned out not to be true. USBank anyway does current appraisal only if it benefits them and then "scheduled" 80% LTV date, not actual date. So our house is worth over 400k now and our balance is under 270k and we're still paying PMI.

[scolls]

Originally Posted by hml1976

That's what we were told as well and it turned out not to be true. USBank anyway does current appraisal only if it benefits them and then "scheduled" 80% LTV date, not actual date. So our house is worth over 400k now and our balance is under 270k and we're still paying PMI.

Removing anything before a scheduled termination date is going to have to pass certain requirements. For Fannie Mae and Freddy Mac it's at least 2 years of good payment history and a 75% LTV along with an updated appraisal. FHA is entirely different and it technically isn't even called PMI. I tell everyone don't expect to remove PMI before the termination date. If you do, consider it a bonus.

[Jkgourmet]

You mentioned that the house "assessed the last two years" for $300,000. I assume you mean the tax assessment, which is totally meaningless to the appraisal.

The appraisal will be based on what the market value of the property is. Assuming your girlfriend had a good realtor and her offer to purchase the house was in line with the market comps, the appraisal should come in at around the amount she offered.

[Hybrid AWD]

Originally Posted by Jkgourmet

You mentioned that the house "assessed the last two years" for $300,000. I assume you mean the tax assessment, which is totally meaningless to the appraisal.

The appraisal will be based on what the market value of the property is. Assuming your girlfriend had a good realtor and her offer to purchase the house was in line with the market comps, the appraisal should come in at around the amount she offered.

Yeah I understand the assessment doesn't mean anything regarding the appraisal, that why I mentioned it like I did so above.

The comps are really good in the neighborhood. Everything is right around $300,000 with the exception of a few smaller homes around the $260-$270 range (not comparable).


The 1st lien holder we have been dealing with has been a real pain in the butt. They wanted to close on October 11th and we countered with October 31st only to have them counter again Oct. 21st. We've accepted and now have to wait for the 2nd lien holder to approve their end.

Once that is all done we will move forward with out inspections/appraisals.