Finance Questions

Archive for February, 2009

Question: Is there a way to avoid paying outrageous PMI if you plan to finance 100% of a new home?

My husband and I are planning to purchase a new home in the next couple of months. I know that traditionally, without 20% down payment, banks require you to pay PMI. While I understand the bank's perspective on this, as a buyer - it seems like money thrown to the wind every month.
My husband has impeccable credit, so we can get a good interest rate. We just aren't in a position to put 20% down at this time. I have heard about 80/20 loans, but I am not sure if that is a better option. I am only intrested in a 30 year fixed rate mortgage - no ARM! Do I have any other options other than PMI???

Answer: Every buyer hates paying PMI but unfortunately when you borrow more than 80% of the homes value you have to pay it. Your only options are:
1) An 80% 1st mtg and 20% second mtg- you will have 2 monthly payments and 2nd mortgage rates are higher so sometimes this is not beneficial.
2) A 75% 1st mtg and 25% second mtg-same draw backs as listed above.
3) If you qualify for a VA loan they will finance up to 100% without PMI.
4) Rural Development programs also do not have PMI.
One benefit of PMI effective this year you can take a tax deduction on the PMI paid if you fall in the designated income bracket.

Now, there are some loan programs that have a reduced PMI premium:
FHA
My Community Mortgage

Lender paid MI- is an option but you will be trading in your lower rate for this. However, I would suggest you get a quote on this to see if it would be beneficial for you.
Let me know if you have any other questions. Good Luck.

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