About to commit the ultimate sin; paying PMI...

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totallynotsure
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About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

wife and i found a house that's "within budget" but a bit of a stretch (as to be expected here in the VHCOL). the other gotcha is that it's 100-years old.

before i commit this sin, i'd like input on the mortgage terms i received.

30-year fixed
10% down
2.75% interest
2.855% APR
$84k cash to close
$89 PMI for 1-6 years
no prepayment penalty
PMI removed after 80% LTV

rationale is that this gives me a cash buffer in case anything hits the fan in the first few months. if not, once i replenish my emergency fund i plan to make lump sum payments to get to the 20% ASAP.

tia.
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willthrill81
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Re: About to commit the ultimate sin; paying PMI...

Post by willthrill81 »

Paying about $1k annually for a few years in PMI isn't the worst financial sin you could commit by a long shot.

2.75% seems a little steep. My BiL was just quoted 2.25% for a 30 year.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

willthrill81 wrote: Wed Nov 04, 2020 1:03 pm Paying about $1k annually for a few years in PMI isn't the worst financial sin you could commit by a long shot.

2.75% seems a little steep. My BiL was just quoted 2.25% for a 30 year.
maybe due to high balance conventional? i haven't sniffed those rates anywhere.
DesertDiva
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Re: About to commit the ultimate sin; paying PMI...

Post by DesertDiva »

My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
fyre4ce
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Re: About to commit the ultimate sin; paying PMI...

Post by fyre4ce »

I think 2.25% on a 30-year fixed is extremely low. There's another thread discussing relationship discounts; you can generally get into this range using a ~$1M relationship discount. I just closed on a 30-year fixed at 2.375% with 0.5 points; that was achieved using a $750k relationship discount. Maybe there are differences between conventional vs jumbo. OP, I would shop aggressively for a low rate, but don't beat yourself up if you don't end up at 2.25%, especially without a relationship discount.
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MP123
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Re: About to commit the ultimate sin; paying PMI...

Post by MP123 »

That's a pretty good plan.

In your other thread it sounded like with 20% down most of your emergency fund would already be earmarked for needed repairs, not to mention moving costs. This will give you much more breathing room.
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Re: About to commit the ultimate sin; paying PMI...

Post by DesertDiva »

totallynotsure wrote: Wed Nov 04, 2020 1:16 pm
DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
Not IMHO
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JoeRetire
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Re: About to commit the ultimate sin; paying PMI...

Post by JoeRetire »

totallynotsure wrote: Wed Nov 04, 2020 1:01 pm 30-year fixed
10% down
2.75% interest
2.855% APR
$84k cash to close
$89 PMI for 1-6 years
no prepayment penalty
PMI removed after 80% LTV

rationale is that this gives me a cash buffer in case anything hits the fan in the first few months.
If you are cutting things so close that you cannot put 20% down, then you are buying too much house.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

DesertDiva wrote: Wed Nov 04, 2020 1:18 pm
totallynotsure wrote: Wed Nov 04, 2020 1:16 pm
DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
Not IMHO
maybe i'm misreading but aren't you saying the person you know is paying 3%? i'm paying 2.75%...
RevFran
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Re: About to commit the ultimate sin; paying PMI...

Post by RevFran »

I would get very clear about what has to happen to get PMI removed. I had PMI in a house purchase and aggressively paid over 15 months 20% of what the lender told me the value was. Then when I petitioned to have PMI removed, they used a completely different LtoV number, which they said came from Fanny. I eventually refinanced the entire loan just to get rid of PMI (dropping my rate a half-point in the process). I will never get PMI again.
rich126
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Re: About to commit the ultimate sin; paying PMI...

Post by rich126 »

RevFran wrote: Wed Nov 04, 2020 1:26 pm I would get very clear about what has to happen to get PMI removed. I had PMI in a house purchase and aggressively paid over 15 months 20% of what the lender told me the value was. Then when I petitioned to have PMI removed, they used a completely different LtoV number, which they said came from Fanny. I eventually refinanced the entire loan just to get rid of PMI (dropping my rate a half-point in the process). I will never get PMI again.
At one time I thought you had to have PMI unless your loan to appraised house value was 80% or less. If you try to pay down the loan principal down but the house value also drops then it changes the equation and the LTV is likely still over 80%.

Its been awhile since I've had PMI.
regularguy455
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Re: About to commit the ultimate sin; paying PMI...

Post by regularguy455 »

Your financial future is not going to hinge on $89/mo. Just pay it and move on. Your liquidity is significantly more important than the cost of PMI.
DesertDiva
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Re: About to commit the ultimate sin; paying PMI...

Post by DesertDiva »

totallynotsure wrote: Wed Nov 04, 2020 1:23 pm
DesertDiva wrote: Wed Nov 04, 2020 1:18 pm
totallynotsure wrote: Wed Nov 04, 2020 1:16 pm
DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
Not IMHO
maybe i'm misreading but aren't you saying the person you know is paying 3%? i'm paying 2.75%...
Yes - its possible that his credit score differs from yours.

Another factor: your lender may have included points in the closing costs to buy down the rate. You could inquire.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

DesertDiva wrote: Wed Nov 04, 2020 1:49 pm
totallynotsure wrote: Wed Nov 04, 2020 1:23 pm
DesertDiva wrote: Wed Nov 04, 2020 1:18 pm
totallynotsure wrote: Wed Nov 04, 2020 1:16 pm
DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
Not IMHO
maybe i'm misreading but aren't you saying the person you know is paying 3%? i'm paying 2.75%...
Yes - its possible that his credit score differs from yours.

Another factor: your lender may have included points in the closing costs to buy down the rate. You could inquire.
they're paying me
DesertDiva
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Re: About to commit the ultimate sin; paying PMI...

Post by DesertDiva »

totallynotsure wrote: Wed Nov 04, 2020 1:54 pm
DesertDiva wrote: Wed Nov 04, 2020 1:49 pm
totallynotsure wrote: Wed Nov 04, 2020 1:23 pm
DesertDiva wrote: Wed Nov 04, 2020 1:18 pm
totallynotsure wrote: Wed Nov 04, 2020 1:16 pm

Likely could but 2.75% isn’t bad with 10% down, no?
Not IMHO
maybe i'm misreading but aren't you saying the person you know is paying 3%? i'm paying 2.75%...
Yes - its possible that his credit score differs from yours.

Another factor: your lender may have included points in the closing costs to buy down the rate. You could inquire.
they're paying me
I’m not sure what you mean. Are you getting cashback at close?
Broken Man 1999
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Re: About to commit the ultimate sin; paying PMI...

Post by Broken Man 1999 »

totallynotsure wrote: Wed Nov 04, 2020 1:16 pm
DesertDiva wrote: Wed Nov 04, 2020 1:14 pm My guess is that you would get a lower rate with a higher down payment. I know someone buying right now who is getting 3% with 30% down on a 30-year and if he went to a lower percentage down the rate would jump.
Likely could but 2.75% isn’t bad with 10% down, no?
Beats any interest rate we have ever received. Of course that is a sample of only two mortgages! We put 50% down on our mortgage for our current home.

I think you are wise to do a 30 year mortgage. We did 30 year mortgages both times, but paid the final mortgage down aggressively. You will have a bit more of a buffer, not a bad thing to have at all.

In a VHCOL area waiting to have 20% down might cost you more than the PMI, if you are in a hot area. You know your market better than we do.

Best of luck to you!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
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cchrissyy
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Re: About to commit the ultimate sin; paying PMI...

Post by cchrissyy »

regularguy455 wrote: Wed Nov 04, 2020 1:45 pm Your financial future is not going to hinge on $89/mo. Just pay it and move on. Your liquidity is significantly more important than the cost of PMI.
yes this
UncleLongHair
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Re: About to commit the ultimate sin; paying PMI...

Post by UncleLongHair »

$89/mo PMI is by far not the worst financial sin you can commit. This is about $5k over 5 years. In the face of what sounds like a $700-800k house that is almost nothing.

More important than that my question would be if you are ready to take on all of the projects that come with a 100 year old house, it could actually be fun and rewarding and not necessarily very expensive but don't think you're going to move in and kick back on the couch immediately.

Also have some kind of long term plan for getting rid of the PMI. Over 5 years the house might appreciate enough on its own to refinance but you might not get the same rate. Look at the terms of the PMI and see what options you have specifically to get rid of it. Sometimes you can pay down the loan and get an appraisal.
Sgnoweht
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Re: About to commit the ultimate sin; paying PMI...

Post by Sgnoweht »

You can pay PMI upfront/lump sum. See if that option saves you any money. Takes away the hassle of refinancing to get rid of it later.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

Sgnoweht wrote: Wed Nov 04, 2020 7:37 pm You can pay PMI upfront/lump sum. See if that option saves you any money. Takes away the hassle of refinancing to get rid of it later.
really? had no idea you could do that. thanks.
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Re: About to commit the ultimate sin; paying PMI...

Post by Outer Marker »

I'll be the contrarian here. I hate throwing away money for no good reason. I'd work hard to find a work-around to PMI. With a 10% down payment, you don't have to dig too deep in the couch cushions to find a way to do it. I'd dip into the emergency fund and pay the 20% down, then, the next day turn around and take out a HELOC for the remaining 10%. If you're the nervous type, immediately draw down the HELOC so you know you're liquid. If you've got a little more swagger in your stride, don't draw on the HELOC, and wait until when and if you need it in an emergency. Another option would be to do a "piggyback" loan for the remaining 10%, but I like the HELOC better, since you don't have to draw on it, and provides a useful low interest rate loan for anything else you might need.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

ok so need advice please.

lender just raised the mortgage insurance from $89/mo. to $161/mo. still working through exactly why but that seems like a dramatic jump. is this typical? we're pretty late in the closing process (12/22 expected close).
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Re: About to commit the ultimate sin; paying PMI...

Post by Outer Marker »

Do not pay PMI! See post above. Why can’t you avoid it?
barnaclebob
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Re: About to commit the ultimate sin; paying PMI...

Post by barnaclebob »

My philosophy is to optimize for things going right while still being able to survive an emergency. Notice I said survive, not be comfortable.

How long will it take to build your emergency fund if you go for 20% down? What would happen if your house threw a $10k suprise during that period? What about $40k?

If you can survive the 40k suprise without having to resort to extreme measures like getting penalized for withdrawing from a retirement account or running up a big 6 month+ credit card balance then I say go for the bigger down payment.

When we bought our first house in 2009 I was left with a few grand in cash and my retiremebt accounts were under $25k at the time. I also had a big savings rate, credit cards, and if really needed relatives should something really bad had happened. The house was relatively new and in good condition. Our second, older house we were in much better shape. But we would probably have been cash flow negative in the event of one of us being laid off. Taxable investments could have covered that event for years. Now after a few years, a refi, and raises we would be cash flow neutral on one salary.
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hand
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Re: About to commit the ultimate sin; paying PMI...

Post by hand »

totallynotsure wrote: Wed Nov 04, 2020 1:01 pm
... once i replenish my emergency fund i plan to make lump sum payments to get to the 20% ASAP.
This may not work out as you anticipate - lenders / servicers *hate* to give up PMI...

Be sure to read and understand the fine print, but simply getting to 20% is unlikely to be sufficient, at a minimum you'll also likely need an expensive appraisal from an appraiser of the lender's choosing (who may be hard to schedule, and motivated to appraise low).

I inherited a house with PMI and even though I had the cash to bring to more than 20% equity, I found it difficult to get a straight answer from the lender / servicer on a guaranteed process to eliminate PMI. Even after transferring the cash to pay down the mortgage, I found it so onerous (and risky given the subjective nature of appraisals) that it was easier to refinance than eliminate PMI early.

In a VHCOL, I'd think risk of a downturn in values would magnify the risk of not being able to remove PMI.

$100 / month isn't going to determine your financial future, but my guidance is to plan for and be willing to accept the worst case of paying PMI to term.
exigent
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Re: About to commit the ultimate sin; paying PMI...

Post by exigent »

fyre4ce wrote: Wed Nov 04, 2020 1:16 pm I think 2.25% on a 30-year fixed is extremely low. There's another thread discussing relationship discounts; you can generally get into this range using a ~$1M relationship discount. I just closed on a 30-year fixed at 2.375% with 0.5 points; that was achieved using a $750k relationship discount. Maybe there are differences between conventional vs jumbo. OP, I would shop aggressively for a low rate, but don't beat yourself up if you don't end up at 2.25%, especially without a relationship discount.
We just closed last week 30 year fixed, $370k refi at 2.625%. House is worth ca. $640k. Oh, and we were able to waive escrow. This was a true no-cost (lender credits were sufficient to cover everything, not just loan costs but all taxes and transfer fees to the county. In fact, an additional payment went in during the process so we wound up get a small amount of cash back to the borrower. Could’ve remedied that but we were so close to the finish line that we just let it ride.

Yes, we could have easily gotten a lower rate if we’d been willing to pay points and/or cover the costs ourselves. This is why it’s so hard to compare rates vs each other — they are highly dependent on lender credits and/or a willingness to pay points. Accept a slightly higher rate, get more lender credits to offset costs. Want an even lower rate? Pay some points and buy it down. So when someone says they got a 30 year fixed rate mortgage at 2.25%, that’s only part of the story.

Regardless, I’m happy. We were at 3.875% previous, so knocking 1.25% off the rate in return for shuffling some paper was well with it. We’re coming out ahead on Day One, with no payback period.
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Re: About to commit the ultimate sin; paying PMI...

Post by exigent »

hand wrote: Thu Nov 19, 2020 10:13 am
totallynotsure wrote: Wed Nov 04, 2020 1:01 pm ... once i replenish my emergency fund i plan to make lump sum payments to get to the 20% ASAP.
This may not work out as you anticipate - lenders / servicers *hate* to give up PMI...
Agreed. We’ve never paid PMI, but I”ve heard horror stories about getting it removed. The closest we came was doing an 80/10/10 on our first home. So we put 10%, and then used a 10% second mortgage to reach 20% and avoid PMI on the main mortgage. I have no idea if that’s even possible (or common) anymore, but it worked well for us.

The rate on the 2nd was higher b/c it was subordinate to the primary and their risk was higher, but we were in complete control of killing it off (which we did in short order) and not having to worry about getting PMI removed.
smalliebigs
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Re: About to commit the ultimate sin; paying PMI...

Post by smalliebigs »

Personally, I wouldn't even consider a house that old. My house is built in the mid 90s and I still find that old. Next house purchase will be at most 5 years old from the day we sign paperwork.
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totallynotsure
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Re: About to commit the ultimate sin; paying PMI...

Post by totallynotsure »

smalliebigs wrote: Thu Nov 19, 2020 11:06 am Personally, I wouldn't even consider a house that old. My house is built in the mid 90s and I still find that old. Next house purchase will be at most 5 years old from the day we sign paperwork.
good for you. enjoy the shoddy build quality you'll find in most new construction.
smalliebigs
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Re: About to commit the ultimate sin; paying PMI...

Post by smalliebigs »

totallynotsure wrote: Thu Nov 19, 2020 5:37 pm good for you. enjoy the shoddy build quality you'll find in most new construction.
You're right. 100 years of manufacturing, engineering, and materials science didn't make a difference.

Would you choose a 100 year old car over a new one?
jharkin
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Re: About to commit the ultimate sin; paying PMI...

Post by jharkin »

smalliebigs wrote: Thu Nov 19, 2020 6:32 pm
totallynotsure wrote: Thu Nov 19, 2020 5:37 pm good for you. enjoy the shoddy build quality you'll find in most new construction.
You're right. 100 years of manufacturing, engineering, and materials science didn't make a difference.

Would you choose a 100 year old car over a new one?
Let me guess, you never lived in a house that wasn't new construction, right?

Thing is... houses are not cars and personal electronics. Most of the 'advances' in building techniques over the last 50 years or so have been aimed at efficiency and speed of construction, but unfortunately durability has suffered greatly. Houses are throwaway commodities now. Other than the fact that the heat bills are lower and you can stuff more insulation in a 2x6 wall than a 2x4 I would take old construction any day of the week.

Examples:
* The framing of that 100 year old house will be effectively the same techniques of the new house, but the roof is probably nailed together with real nails rather than the flimsy staple plates they use on prefab truss rafters. The sheathing will be real solid wood rather than cheap particle board that's used a lot today.
* The windows will be actual wood, and the older they are the better as they where cut from old growth trees and naturally rot resistant. As long as the paint is maintained old winds will last nearly indefinitely. New double pane windows may insulate better, but are usually made of cheap plastic and have lifespans of 20 years or less. If they are wood its farm grown and even lass durable than plastic sadly. Typically non-repairable, so they get thrown away every couple decades - a huge waste that far outweighs the small energy savings
* If you ever lived in a house with cast iron plumbing you would love the *silence* and curse the fact that you hear it every time somebody uses a bathroom in a modern house full of plastic pipes.
* Dont even get me started on real brick fireplaces and chimneys vs sheet metal prefab garbage.


I could go on... but its something you don't truly "get" until you live in an old house.
WS1
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Re: About to commit the ultimate sin; paying PMI...

Post by WS1 »

smalliebigs wrote: Thu Nov 19, 2020 11:06 am Personally, I wouldn't even consider a house that old. My house is built in the mid 90s and I still find that old. Next house purchase will be at most 5 years old from the day we sign paperwork.
New buildings sounds great, but unless you have tons of money they are in new neighborhoods.



I'm ride or die for pre WW2 development patterns
smalliebigs
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Re: About to commit the ultimate sin; paying PMI...

Post by smalliebigs »

jharkin wrote: Fri Nov 20, 2020 7:44 am
Man, you know all about me now from that single post.

Are you seriously gatekeeping housing preferences?
DVMResident
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Re: About to commit the ultimate sin; paying PMI...

Post by DVMResident »

PMI is just another cost. It’s not some mortal sin to pay it.

The “only buy if you have 20% down” is an oversimplification. You have to live somewhere. The more prudent question is “buy or rent?” All costs should be included in a ‘buy vs rent’ calculation. PMI just gets rolled into the math.

Since you plan to remove the PMI removal clause very closely as they do vary-critical how they calculate value.

FWIW we did the same thing for our first house: 10% down with PMI. Despite PMI, buying was waaaaay cheaper than renting in our case the and we got lucky with market gains doing the heavy lifting on PMI removal.

Enjoy your potential purchase, OP.
Lazareth
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Re: About to commit the ultimate sin; paying PMI...

Post by Lazareth »

I wouldn't give it a second thought. If PMI gets you into the home, do it. It's a reasonable trade-off for the lower down payment.
a/66, retired, married, enjoy p/t employment.
Independent George
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Re: About to commit the ultimate sin; paying PMI...

Post by Independent George »

I'm less concerned about the PMI than I am about the costs (in both time and money) of renovating a 100 year-old property. Just getting the wiring up to 2020 standards sounds like a job and a half, and it also sounds like you're stretching yourself thin for the privilege.
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