First time buyer - Rates and down payment questions (PMI, loan officer, interest rate)

[Parker501]

I live in Los Angeles if it helps to answer my questions.
My partner and I are thinking about buying a house soon, we're first time buyers. We have not talked to any lenders yet - have just been doing some research and looking at houses online to figure out what things are selling for and what we can afford.
Basically, I'm wondering what peoples opinions are for the right time to jump in and actually be more serious about the process. The original plan was to save 20% down, then talk to lenders and start looking.
Friends are telling me it may be better to start looking now because the rates are low and will be higher by the time we have the 20%. Any thoughts? Would it be better to get in now and pay the mortgage insurance? Someone said you can stop paying the mortgage insurance after 5 years if you've paid down the 20% by then?
Thanks

[VictorBurek]

Recent data has shown both home values and mortgage rates rising. So waiting until you have a larger downpayment might result in you having to pay more for the house you want in regards to purchase price and even more due to more interest charges assuming rates are higher.

On a conventional loan, which requires 5% down, mortgage insurance falls off once your loan to value is paid down to 78%. If you do a FHA loan, mortgage insurance will never fall off. It used to fall off at 78% ltv but you had to pay for at least 5 years, but FHA just changed that so now consumers have to pay MI for the life of the loan..

So my opinion would be to buy sooner rather than later. Do a conventional loan with at least 5% down. You could also ask your loan officer if they can do a 80% first lien and a 2nd mortgage for the remainder. By structuring the loan that way, you don't have any mortgage insurance.

Good luck.

[Bette]

Look into buying out the mortgage insurance. Just did it for 2 clients. Positive outcome!

[kww]

some lenders can offer a 5% conventional option with no MI. it's either absorbed by the lender (via slightly higher rate), or paid at closing via seller subsidy from the buyer (if agreed upon) or by the buyer.

your lender can run the variables of paying the MI upfront out of pocket, absorbing it in your interest rate, or paying it monthly (but having it drop off unlike FHA MI that is for the life of the loan now)

[thelopez2]

The time is right when you are paying 1) too much in rent, 2) you have a stable job, 3) It is in an area you want to be in for years and will able to afford to if you lost your current job.

You don't want to use all of your cash, just to get into a home, you also don't want o chase the market and buy out of fear that you won't be able to buy next year.

I'd avoid a monthly PMI payment if I could. I'd take either a higher rate or taking a single mortgage insurance payment. Think of PMI some thing like car insurance. You can pay $2000 to have insurance for life or pay $200 a month an unknown amount of time. You can even ask the seller to pay the $2000 for you

The right time to buy was 2011 to early 2013 year. I won't know if today is the right time to buy until 2 years from now , my crystal ball isn't working right now. Hind sight is 20/20

Anyway, you have more options than you think. Also just because you found the information on a creditable website like CNN, doesn't mean it is completely accurate. Ask real professional questions.

PMI, FHA MI, get incorrectly described all the time, because things change.

To add to that 78% thing described earlier, it is based on the regular scheduled payments of when it hits 78% with a minimum of 5 years, when rates were falling and values were increasing , people would just refi out into a new loan. I don't think you'll see that as much now.

If you are offered a 80% 1st and a 2nd to avoid PMI, you must consider what the interest rate on that 2nd will be , It might be adjustable it might be fixed at a higher rate.

There are a couple of ways to approach this, ask a lender , broker, credit unit ,where ever, how much can I afford
Or go the route
I saw a house for $xxx,xxx ,can I get a loan for it .

You are in LA , you are started to look online. When you get serious I strongly recommend you work with a real local person.

How much is your rent?
How much are homes you think you want to buy?
How long do you plan to live there.

I don't know if it is the right time to buy but I am constantly looking.

BTW , yesterday was the time to LOCK your loans versus today.

[Parker501]

Thanks for the advice everyone
to thelopez2
- We are currently paying $1400/month in rent. I don't think I'll ever get a mortgage for less than that but I am tired of living in a mediocre apartment and its part of the motivation to get a house.
- We're looking at houses in the $500K range; and currently between the two of us have close to 15% saved (that would leave us with no safety net which worries me to through it all in the downpayment).
- we plan on living in the house for prob 5-10 years? Haven't given it alot of thought but it would be a starter home.
I think in 8-12 months we could have enough for 20% + a bit of cushion in case anything goes wrong. I'm starting to think this may be our best option and just deal with any fluctuations in interest rates.
Thanks again

[thelopez2]

Originally Posted by Parker501

Thanks for the advice everyone
to thelopez2
- We are currently paying $1400/month in rent. I don't think I'll ever get a mortgage for less than that but I am tired of living in a mediocre apartment and its part of the motivation to get a house.
- We're looking at houses in the $500K range; and currently between the two of us have close to 15% saved (that would leave us with no safety net which worries me to through it all in the downpayment).
- we plan on living in the house for prob 5-10 years? Haven't given it alot of thought but it would be a starter home.
I think in 8-12 months we could have enough for 20% + a bit of cushion in case anything goes wrong. I'm starting to think this may be our best option and just deal with any fluctuations in interest rates.
Thanks again

Are you ready for your monthly payment to jump from $1400 to $2900 a month plus utilities to own a house? If you are, you can consider putting 12% down and keep that other $15,000 as a cushion or ask the seller to cover the closing cost and put even less down.

The nice thing about closing near the end of the year, is you don't have to wait so long to get a refund , if you get money coming back.

Ask your accountant, "If I Borrow $8000 to pay for Mortgage Insurance and pay it all at close of escrow, not a monthly PMI payment, will I get money back on my taxes?"

[SmartMoney]

Originally Posted by Bette

Look into buying out the mortgage insurance. Just did it for 2 clients. Positive outcome!

I'm sorry, but you keep referring to the upfront single premiums or BPMI or LPMI as "buying out" mortgage insurance and that is technically incorrect and can be misleading. Thousands of homeowners were ineligible for modifications due to the mortgage insurance they "bought out" (LPMI & BPMI). These homeowners applied for loan mods and the mortgage insurance companies would not carry the insurance over to the mod, so they never could do the loan modification. You can search on this very site and see the many complaints where people didn't even know they had mortgage insurance.

If someone does LPMI or BPMI, it does not mean they do not have mortgage insurance on their loan - all it means is the premium has been paid for the life of the loan - the insurance is in place. This industry is confusing enough, it's imperative those of us left be as technically correct as possible. In many cases, readers depend on the information provided by the professionals here. We owe it to them to provide accurate information. (And, as many times as a reader is told to see their own counsel, it doesn't mean they will).