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Dilemma in trying to get rid of PMI while searching for a new home
Posted on 3/20/19 at 9:32 am
Posted on 3/20/19 at 9:32 am
Background: Bought my house for $209,000 4 years ago with an FHA loan and pay about $130 in PMI which I hate and apparently cant get rid of without refinancing. I don't plan to do that since my interest rate is 3.375% and dont want to drop PMI for a higher rate. I do plan on moving in 2-4 years once we decide to have a 2nd child.
Every month I typically pay an extra $150 in principal towards the mortgage and have been since I've been in the house.
Is it smarter to save that $150 every month and put in a separate account to make sure I have 20% for house #2 and avoid FHA and PMI payments?
At this point, I don't see a benefit to paying that extra $150 every month when it is not allowed to get rid of PMI.
Every month I typically pay an extra $150 in principal towards the mortgage and have been since I've been in the house.
Is it smarter to save that $150 every month and put in a separate account to make sure I have 20% for house #2 and avoid FHA and PMI payments?
At this point, I don't see a benefit to paying that extra $150 every month when it is not allowed to get rid of PMI.
5
Posted on 3/20/19 at 9:45 am to tiger10lsu
Are you selling the house to buy the new house? If so, it doesn't really matter if you make the extra payment or put the money in the bank provided real estate values don't go down.
Posted on 3/20/19 at 9:51 am to VABuckeye
Yes. I would be selling the house and taking the profit to purchase the new home. Bought for $209,000. Owe about $185,000. Worth about $230,000.
Posted on 3/20/19 at 10:19 am to tiger10lsu
If you are only staying 2 years I understand why you wouldn't refi, but over 4 years you'd save vs the increase in rate. I hate PMI and think it's a racket and I would really run all my numbers and see if it's worth your while. 2-4 years can easily turn into 4-6 years if something happens and your situation changes.
Posted on 3/20/19 at 11:17 am to way_south
I'm pretty sure if his rate is only 3.375 right now, if he refinances then the higher interest rate is going to cost him a little more than the $130/month he'd be saving in PMI. Plus factor in other costs for appraisal, loan origination fees, and title company fees.
Posted on 3/20/19 at 12:42 pm to Tiger Prawn
3.375 rate makes no sense in doing a refi right now.
Your FHA PMI which is really labeled MIP is a yearly premium you pay factoring your loan balance and premium rate paid out over 12 months. This means the FHA MIP you are paying is going down slightly each year because your loan balance is going down.
Your FHA PMI which is really labeled MIP is a yearly premium you pay factoring your loan balance and premium rate paid out over 12 months. This means the FHA MIP you are paying is going down slightly each year because your loan balance is going down.
Posted on 3/20/19 at 12:44 pm to HYDRebs
Also, in the slight chance you did put 10% more down on your FHA loan the MIP does go away in the 11th year. Otherwise you are correct it is for the life of the loan.
Posted on 3/20/19 at 1:44 pm to tiger10lsu
If you wait to buy the new house AFTER you sell the existing home, you will have, in cash, whatever equity is in your existing home which you could use towards the 20% goal.
By paying the additional $1800/yr on the loan, assuming it all goes towards principle, you could come out ahead if the home appreciates in value. You are subject the housing market in your area obviously. The safest route would be to put the $1800 in a high yield money market or savings account that way its liquid when you need it.
By paying the additional $1800/yr on the loan, assuming it all goes towards principle, you could come out ahead if the home appreciates in value. You are subject the housing market in your area obviously. The safest route would be to put the $1800 in a high yield money market or savings account that way its liquid when you need it.
Posted on 3/20/19 at 11:36 pm to tiger10lsu
quote:
Is it smarter to save that $150 every month and put in a separate account to make sure I have 20% for house #2 and avoid FHA and PMI payments?
I think so.
If you pay extra principal on the current home, the value of that home could go down and wipe it out. Or you may need to close on the new home before you can sell the old one and access that extra principal.
Putting the extra money in an account, which can easily earn 2% FDIC insured, avoids those issues and could pay off huge if it allows you to make a big enough down payment to avoid PMI for years of notes on the new house,
Posted on 3/21/19 at 6:41 am to tiger10lsu
Why can't you get a conventional loan on the next one? You may still have PMI if you don't put 20% down, but have a chance to remove it at some point in the future.
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