PMI

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PMI

Postby mbres60 » Sat Dec 22, 2012 2:50 pm

My dd and her husband are purchasing a new home. Navy Federal, when qualifying them for a mortgage as they started looking for a home, said they would qualify for a rate of about 3.8% because of the amount they would be putting down. that is 30 years fixed. I don't believe they would be paying PMI. Is it worth it to go to a different lender and get a better interest rate while paying PMI? Is it hard to get rid of PMI once your loan value is low enough not to need it? Who wants to pay a higher rate for 30 years (they don't plan on moving) ?
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Re: PMI

Postby kenyan » Sat Dec 22, 2012 4:51 pm

Without other details, I would say that they should avoid PMI if possible. It's a substantial cost that comes with zero benefit to the borrower - it's insurance paid by the borrower for the benefit of the bank.

One thing to consider is that while you might be able to get rid of the PMI down the road, if home values drop they could be paying it much longer than originally predicted. Values are rising slowly in most parts of the country right now, but that could certainly change.

Also, even if they don't plan on moving: (1) most people move before 30 years are up - that's a very very long time, and (2) they may be able to refinance at a lower rate later on. Sure, every commercial you hear tells you that this is the lowest rate ever and it'll be gone soon, but they have been saying that for about 4 years now and rates have continued to drop.
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Re: PMI

Postby mbres60 » Sat Dec 22, 2012 5:01 pm

Thanks Kenyan but do you really think rates will drop much lower than now? I can't imagine 30 year loans much less than in the 3% range (although I realize one never knows!). I also don't know what kind of rate they could get with PMI. They currently have a mortgage with Navy Federal on their condo but that had a 20% downpayment. Houses here are very expensive so they won't have 20% down but just about 12% down.
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Re: PMI

Postby kenyan » Sat Dec 22, 2012 7:47 pm

I didn't think rates would drop below 5.5%. I didn't think rates would drop below 5%, 4.5%, or 4% either. What I (or just about anyone else) think will happen doesn't matter - we really have no idea. What I think is that it's completely within the realm of possibility.

Most people on this board will advise house purchasers to save up a 20% down payment before purchasing.
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Re: PMI

Postby telemark » Sat Dec 22, 2012 10:01 pm

I think you should decide how much insurance you need, for everything, and then shop around for the best deal.
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Re: PMI

Postby Occupier » Sat Dec 22, 2012 10:50 pm

PMI - private mortgage insurance - protects the lender if the loan defaults and the property is not worth - after costs - enough to cover the loan after foreclosure and sale. Basically if your paying 20% down there is no requirement or need to have PMI. So if you are, and they are requesting PMI, shop elsewhere. If your not paying that big a down, having to buy and pay for PMI is routine. Dave
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Re: PMI

Postby JustBill » Sun Dec 23, 2012 1:30 am

mbres60 wrote:My dd and her husband are purchasing a new home. Navy Federal, when qualifying them for a mortgage as they started looking for a home, said they would qualify for a rate of about 3.8% because of the amount they would be putting down. that is 30 years fixed. I don't believe they would be paying PMI. Is it worth it to go to a different lender and get a better interest rate while paying PMI? Is it hard to get rid of PMI once your loan value is low enough not to need it? Who wants to pay a higher rate for 30 years (they don't plan on moving) ?


Truly the 3.8% doesn't relate to the amount of down payment, rather reflects the borrower's perceived credit worthiness. PMI is only an element with conventional mortgages and will only be applicable to loans with less than 20% initial equity to sell price. PMI is charged at a rate of .5 to 1.0 percent of the initial loan amount. The LTV ratios won't vary with the lender, it will be specific to the sales transaction. In the event your DD & DSIL don't have 20% worth of skin in the game and indeed are required to pay PMI, the lender is required to drop PMI at 78% LTV of the original sales price as the loan is paid down. Google "homeowners protection act" for more information on PMI matters. Not saying they may not find a better APR at a competing lender however, I just don't know.
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Re: PMI

Postby mbres60 » Sun Dec 23, 2012 10:18 am

Thanks all. Navy Federal doesn't require PMI if you are getting a conventional loan. I think they are getting a loan of $400,000. They have a down payment of about 12%. They have already offered on a house and been accepted. They have to just sign the final contract. I had always heard that paying PMI was a bad thing and hard to get out of. I guess maybe things have changed in the past few years? Anyways I was surprised when my dd mentioned a rate of 3.8% because of the amount they would put down. This was told to them when they got the qualifying letter to show prospective sellers. Maybe it will change now that they are under contract. They have very good credit of 800 or so. When they were qualified by Navy Federal it was without them even selling their own current condo (which they have now down). I'm hoping that the rate will go down now however not holding my breath. Just wanted to know what people thought and if they should be looking elsewhere where they would definitely have to pay the PMI.
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Re: PMI

Postby keq1381 » Sun Dec 23, 2012 10:46 am

My mortgage is with Navy Federal. I was able to get the best rate they offered at the time with only 5% down. Unless things have changed, the rate your dd is getting may not just be related solely to the down payment. However, avoiding PMI (which will cost > $200 a month) is well worth a small increase in rate for the short term.
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Re: PMI

Postby mbres60 » Sun Dec 23, 2012 12:00 pm

keq1381 wrote:My mortgage is with Navy Federal. I was able to get the best rate they offered at the time with only 5% down. Unless things have changed, the rate your dd is getting may not just be related solely to the down payment. However, avoiding PMI (which will cost > $200 a month) is well worth a small increase in rate for the short term.


What do you mean by the short term? Do they change your rate at some point even though it is a fixed rate?

I spoke w/dd today and found out that they were quoted 3.87% for a mortgage at $417,000 (I think that is the most you can get w/o PMI) and they put $60,000 down. They purchased their house for less than $477,000 (417,000 + 60,000). They are getting the signed contract today and will be submitting it to Navy Federal. They will talk with them about what interest rate they can get depending upon whether they put down the full $60,000 or hold some back so they can make some changes in the house or pay off a car loan etc. I told her to check out various scenarios and see what the rates would be.
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Re: PMI

Postby keq1381 » Sun Dec 23, 2012 2:58 pm

What do you mean by the short term? Do they change your rate at some point even though it is a fixed rate?

I spoke w/dd today and found out that they were quoted 3.87% for a mortgage at $417,000 (I think that is the most you can get w/o PMI) and they put $60,000 down. They purchased their house for less than $477,000 (417,000 + 60,000). They are getting the signed contract today and will be submitting it to Navy Federal. They will talk with them about what interest rate they can get depending upon whether they put down the full $60,000 or hold some back so they can make some changes in the house or pay off a car loan etc. I told her to check out various scenarios and see what the rates would be.


By short term, I mean until they are up to 20% equity and they will be able to refinance. It looks like they are not paying any additional points or an origination fee to get the 3.875% rate (see https://dias.navyfcu.org/mindbox/mbui.nsf/AppHome?OpenAgent).
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Re: PMI

Postby mbres60 » Sun Dec 23, 2012 4:53 pm

keq1381 wrote:
What do you mean by the short term? Do they change your rate at some point even though it is a fixed rate?

I spoke w/dd today and found out that they were quoted 3.87% for a mortgage at $417,000 (I think that is the most you can get w/o PMI) and they put $60,000 down. They purchased their house for less than $477,000 (417,000 + 60,000). They are getting the signed contract today and will be submitting it to Navy Federal. They will talk with them about what interest rate they can get depending upon whether they put down the full $60,000 or hold some back so they can make some changes in the house or pay off a car loan etc. I told her to check out various scenarios and see what the rates would be.


By short term, I mean until they are up to 20% equity and they will be able to refinance. It looks like they are not paying any additional points or an origination fee to get the 3.875% rate (see https://dias.navyfcu.org/mindbox/mbui.nsf/AppHome?OpenAgent).


Thanks for the link!
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Re: PMI

Postby rocket » Mon Dec 24, 2012 12:34 pm

PMI used to be a tax deduction in 2011. PMI is not tax deductible in 2012 (or maybe 2013).
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Re: PMI

Postby leonard » Thu Dec 27, 2012 10:40 pm

While the financial costs weren't bad, the beauracry invovled with getting the PMI removed was horrendous. Multiple letters additional inspections and it took months.

I would recommend people never, ever purchase if PMI is required. Simply wait and save for the necessary down payment.
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Re: PMI

Postby mbres60 » Fri Dec 28, 2012 9:01 am

They decided to go with a rate of 3.875% for 30 year fixed w/Navy Federal. No PMI, no loan origination fee and just .025 in points. Personally I would have gone with a 3.5% mortgage that had a total of 1.75 points but then again I have more money than they do so they did not want to spend the money to buy down the rate. They hope to pay off the loan in fewer than 30 years. I did tell them that in years to come when interest rates may be 6% they won't want to pay down this loan :)
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