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Message
Is avoiding PMI that important?
Posted on 12/29/14 at 10:47 am
Posted on 12/29/14 at 10:47 am
With the addition of our first born, the wife and I have officially outgrown our 2 bedroom townhouse. We have a neighborhood picked out and floor plan that's around 325k.
If we stay on track saving, we should have around 30-40k by the end of 2015 with the hopes of getting 10-15k from the sale of our townhouse. I would really like to close on the house in 2015 if at all possible but if avoiding PMI is that important we can push it a little longer to get that 20%.
So question is, how much would you be comfortable putting down?
If we stay on track saving, we should have around 30-40k by the end of 2015 with the hopes of getting 10-15k from the sale of our townhouse. I would really like to close on the house in 2015 if at all possible but if avoiding PMI is that important we can push it a little longer to get that 20%.
So question is, how much would you be comfortable putting down?
14
Posted on 12/29/14 at 10:52 am to BoogaBear
I wouldn't buy a 300k house without 20% down but people do it all the time, expect market fluctuations in the next few years in south la if the price of oil stays down too
Posted on 12/29/14 at 11:49 am to yellowfin
Paying PMI is throwing money away. So, yes, it is important to avoid it. Keep saving until you hit that 20%, or buy less house.
Posted on 12/29/14 at 11:51 am to BoogaBear
There's a few other factors too.
I'm not positive on all these, but what I recall. FHA changes means you can't escape it on that loan type. Which sucks. Also locked in for several years if less than 10% I believe on a conv.
It's not critical. If 10% is required to someday get rid of PMI, that's more important IMO. PMI is just pissing away $150-250/month to absolutely nothing for several years. So it depends on if that money every month is worth the new place.
I'm not positive on all these, but what I recall. FHA changes means you can't escape it on that loan type. Which sucks. Also locked in for several years if less than 10% I believe on a conv.
It's not critical. If 10% is required to someday get rid of PMI, that's more important IMO. PMI is just pissing away $150-250/month to absolutely nothing for several years. So it depends on if that money every month is worth the new place.
Posted on 12/29/14 at 12:09 pm to LSUtigerME
Typically, this wouldn't be a questions but we are literally out of space at this house. We want to skip the middle of the road 3 bedroom house and get something we can grow into.
I have been seeing some banks offering no PMI loans without 20% down. Might be worth looking into.
I have been seeing some banks offering no PMI loans without 20% down. Might be worth looking into.
Posted on 12/29/14 at 12:16 pm to hungryone
quote:
Paying PMI is throwing money away. So, yes, it is important to avoid it. Keep saving until you hit that 20%, or buy less house.
I've heard that there are ways to avoid it without putting 20% down
I'd say that the "only buy a house if you have 20% down" is probably not the best advice for everyone.
If PMI is throwing money away then isn't rent also throwing money away? What if interest rates rise substantially between the time you save the additional money to get to 20%? Won't seem like such stellar advice then would it?
Posted on 12/29/14 at 12:16 pm to LSUtigerME
quote:
FHA changes means you can't escape it on that loan type.
But you can refinance to a traditional mortgage later
Posted on 12/29/14 at 12:39 pm to Powerman
quote:
What if interest rates rise substantially between the time you save the additional money to get to 20%? Won't seem like such stellar advice then would it?
This
quote:
But you can refinance to a traditional mortgage later
And This.
I'd do it if you can swing 10% and qualify for a traditional mortgage. PMI is much lower on them than FHA.
Posted on 12/29/14 at 12:41 pm to BoogaBear
If you can find someone to do "80-10-10" financing, that might help you. Basically you get an 80 percent loan, a 2nd loan for 10 percent, and pay 10 percent down. Avoid PMI, and at least the interest on the 2nd should be deductible.
I would avoid FHA insurance in your situation as you have to refinance to get rid of it... and if you are close to 20 percent, it's not worth it.
But traditional PMI varies based on factors including credit score and down payment. If you can put down 15 percent or so, and be able to pay a good bit extra toward principal each month, and get a good rate on PMI, it might not be too bad for a couple of years.
If you can get down to 78 percent LTV in a couple of years, and it costs you $200 a month, but you can move now as opposed to moving a year or two from now... it might not be a terrible decision.
I would avoid FHA insurance in your situation as you have to refinance to get rid of it... and if you are close to 20 percent, it's not worth it.
But traditional PMI varies based on factors including credit score and down payment. If you can put down 15 percent or so, and be able to pay a good bit extra toward principal each month, and get a good rate on PMI, it might not be too bad for a couple of years.
If you can get down to 78 percent LTV in a couple of years, and it costs you $200 a month, but you can move now as opposed to moving a year or two from now... it might not be a terrible decision.
Posted on 12/29/14 at 2:39 pm to BoogaBear
We bought in July 2012 and put ~13% down with a conventional loan and house value of ~$218k (sell price of ~$206k). In September we got the house reappraised through our lender (Wells Fargo) for $350. It was appraised for ~$240k and the $92 PMI per month was removed. By not having the full 20% down it cost us ~$2300 over the course of 2 years. If you can put down at least 15% the PMI rate will be lower. Google PMI rates and there are some information online that shows you how the rates work depending on how much you put down. As others have said, FHA keeps PMI for the life of the loan. If you have good credit, you can get a traditional loan for as little as 5% down. Good luck.
Posted on 12/29/14 at 4:29 pm to LSUSUPERSTAR
I bought a house in April ($219,000), put 5% down, and got some type of loan that, because we had great credit, allowed us to basically buy out the PMI for around $5,0000 up front.
Saved like $120/month on our note so we figured if we stayed in this house longer than 4 years, it would pay for itself.
Might look into something like that.
ETA: I wouldn't buy/build for that much without having 20% down. Why not an in-between house for now? That's our plan. Stay in this nice but moderate house for 5 years or so and build our "dream" house.
Although who the frick knows what the market will do
Saved like $120/month on our note so we figured if we stayed in this house longer than 4 years, it would pay for itself.
Might look into something like that.
ETA: I wouldn't buy/build for that much without having 20% down. Why not an in-between house for now? That's our plan. Stay in this nice but moderate house for 5 years or so and build our "dream" house.
Although who the frick knows what the market will do
This post was edited on 12/29/14 at 4:32 pm
Posted on 12/29/14 at 5:53 pm to BoogaBear
Talk to your lender. If you go conventional you can finance the PMI into the loan and pay a lump sum upfront. With 4% money I'd keep my cash and finance as much as possible, but know thy self is always the best rule of real estate.
Edit - I know a few lenders with an 85-15 no PMI product.
Edit - I know a few lenders with an 85-15 no PMI product.
This post was edited on 12/29/14 at 5:57 pm
Posted on 12/29/14 at 6:29 pm to BoogaBear
As others have noted, PMI is an extra expense but there are other factors to consider as well. For example, if rates rise while you waited.
In my own case I bought my first place in 2002 with 3% down. I was paying PMI for all of the 14 months it took for prices to skyrocket in the DC area enough for me to get a reassessment and get credit for the increased equity and stop paying PMI. Obviously I was fortunate, you may or may not be - the point is that yes, PMI is an added (and perhaps significant) expense but it isn't the only thing to look into.
Here's another one - if you are early in your career and buying a place to stay in for the next 20-30 years while you raise a family, you might want to consider buying a bit more than you can afford right now. The idea here is that presumably you'll get some significant salary increases in the next 5-10 years and it'll work out. It's a bit of a gamble but if you play it safe instead then you'll just be paying an extra $10-15K when you get your "real" home in a few years anyway. Buying/selling a house is pretty expensive too and worth paying quite a bit of PMI to avoid.
In my own case I bought my first place in 2002 with 3% down. I was paying PMI for all of the 14 months it took for prices to skyrocket in the DC area enough for me to get a reassessment and get credit for the increased equity and stop paying PMI. Obviously I was fortunate, you may or may not be - the point is that yes, PMI is an added (and perhaps significant) expense but it isn't the only thing to look into.
Here's another one - if you are early in your career and buying a place to stay in for the next 20-30 years while you raise a family, you might want to consider buying a bit more than you can afford right now. The idea here is that presumably you'll get some significant salary increases in the next 5-10 years and it'll work out. It's a bit of a gamble but if you play it safe instead then you'll just be paying an extra $10-15K when you get your "real" home in a few years anyway. Buying/selling a house is pretty expensive too and worth paying quite a bit of PMI to avoid.
This post was edited on 12/29/14 at 6:30 pm
Posted on 12/29/14 at 7:57 pm to foshizzle
(no message)
This post was edited on 12/21/21 at 10:05 am
Posted on 12/30/14 at 6:19 am to BoogaBear
Just fyi...
Assuming you go conventional, and lender charges you 2 points to roll PMI upfront into mortgage, this puts number at 331,500. If you put down 3.5% minimum on a mortgage at a rate of 4.5% and the cost of the loan is approx 3% (loans aren't free), that down payment/cash to close number is 19,890 of which 11602.50 will apply to down payment.
331,500 - 11602.50 = 319,897.50 loan amount.
319,897.50 financed at 4.5% over 30 years is 1620.87 for principal, interest, and PMI. Taxes,insurance, & HOA if applicable will grow this number.
Assuming you go conventional, and lender charges you 2 points to roll PMI upfront into mortgage, this puts number at 331,500. If you put down 3.5% minimum on a mortgage at a rate of 4.5% and the cost of the loan is approx 3% (loans aren't free), that down payment/cash to close number is 19,890 of which 11602.50 will apply to down payment.
331,500 - 11602.50 = 319,897.50 loan amount.
319,897.50 financed at 4.5% over 30 years is 1620.87 for principal, interest, and PMI. Taxes,insurance, & HOA if applicable will grow this number.
Posted on 12/30/14 at 6:25 am to XanderCrews
quote:
If you sell yourself this is not true. And Probably not true depending on how much PMI you dump in the meantime. Try to stay away of PMI if you can. There is a reason its tax deductible.
PMI rolled in upfront is around 2% (2 points) of the loan amount. On 325k roughly 6500.
If you think that just by selling yourself you'll be cheaper than 6500 with closing attorney fees on the sale of home and lender fees on the next mortgage, not to mention the cost to move, you're extremely naive
Posted on 12/30/14 at 7:00 am to BoogaBear
I bought an older home on a nice sized lot, in an awesome area of where I'm from. Went RD loan, put 0% and used that cash to renovate it.
PMI for RD is around $55/mo. Had I only put 5% down and went conventional, PMI would've been $120/mo and caused my note to be higher (Even with the 5% down).
The catch with RD is that PMI is over the lifetime of the loan, but I don't plan on living in this house for 30 years. I plan to stay there 5-10 years and sell. It's a starter home, and I'll probably end up paying less PMI than if I rolled with 5% and conventional.
PMI for RD is around $55/mo. Had I only put 5% down and went conventional, PMI would've been $120/mo and caused my note to be higher (Even with the 5% down).
The catch with RD is that PMI is over the lifetime of the loan, but I don't plan on living in this house for 30 years. I plan to stay there 5-10 years and sell. It's a starter home, and I'll probably end up paying less PMI than if I rolled with 5% and conventional.
This post was edited on 12/30/14 at 7:09 am
Posted on 12/30/14 at 7:31 am to ItNeverRains
Thanks for all the responses.
I guess I should shed some more light on the situation.
We currently have a 2 bedroom townhouse about 1300 sq ft. We are now busting at the seems with baby stuff everywhere, no garage, no attic storage, etc. The idea when we bought this house was the skip the middle of the road home and get into the "dream house" sooner.
We have been paying on this home for 4 years now and have payed the principle down the 90k. Several homes in the neighborhood have been selling for the 105-115 range, so we are hoping to make 10k or more from the sale of this home.
The house we are looking at is a builder who purchased land and has around 20-25 different floor plans to choose from. These aren't the only plans, you can do custom and changes to existing. We found one we like listed at 324,900. Comes with everything we want for the most part.
If you use their preferred lender all closing costs are covered. We currently save ~$2000 a month, some months more. Our plan is to meet with the builder mid 2015 when we have around 25k in savings and start the process. Hopefully close at the end of the year with around 40k in savings in addition to whatever we make from the sale of our current home.
If everything goes to plan, that gets us somewhat close to PMI so I didn't know if it was worth waiting or seeing if the lender would do an 80-10-10 or 80-15-5 or other options.
I guess I should shed some more light on the situation.
We currently have a 2 bedroom townhouse about 1300 sq ft. We are now busting at the seems with baby stuff everywhere, no garage, no attic storage, etc. The idea when we bought this house was the skip the middle of the road home and get into the "dream house" sooner.
We have been paying on this home for 4 years now and have payed the principle down the 90k. Several homes in the neighborhood have been selling for the 105-115 range, so we are hoping to make 10k or more from the sale of this home.
The house we are looking at is a builder who purchased land and has around 20-25 different floor plans to choose from. These aren't the only plans, you can do custom and changes to existing. We found one we like listed at 324,900. Comes with everything we want for the most part.
If you use their preferred lender all closing costs are covered. We currently save ~$2000 a month, some months more. Our plan is to meet with the builder mid 2015 when we have around 25k in savings and start the process. Hopefully close at the end of the year with around 40k in savings in addition to whatever we make from the sale of our current home.
If everything goes to plan, that gets us somewhat close to PMI so I didn't know if it was worth waiting or seeing if the lender would do an 80-10-10 or 80-15-5 or other options.
Posted on 12/30/14 at 8:34 am to BoogaBear
We just closed on a loan with lender paid PMI, 5% down. It cost us a higher interest rate, (.4 percent higher) but our monthly payment is significantly lower than what it would have been with the pmi. We will either sell the house in a couple years or refinance a little later if we end up loving it.
Posted on 12/30/14 at 8:36 am to BoogaBear
i tend to disagree with most on here on the housing front. i don't look at the house as an investment, but as a place to live. i also think it's fine to buy a house to grow into if you plan on staying in this new house a long time. i would go ahead and make the move even with PMI. it sounds like you have been living frugally for a while now and got a lot saved up. it also sounds like you have a good idea what you can afford. imo it wouldn't ruin you financially to get the house you want here (it would also make for a higher quality of life compared to a townhouse you don't fit in).
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