Real Estate
May 26, 2020
link to facebook link to twitter
More Stories
Second mortgage and refinance How the new PPP loan may adversely affect your mortgage How to navigate appraisal during coronavirus pandemic How to plan the optimal time to buy a rental property How to avoid getting a jumbo loan due to Coronavirus A factor that can drive your mortgage cost up How child support and alimony can affect your ability to get a mortgage What to look for when getting a mortgage on a manufactured home Why getting a 30-year fixed-rate mortgage is a smart financial move How to lower your cash to close when buying a home What you need to know about securing a VA mortgage Mortgage payment relates to purchase price What to expect mortgage rates to change in the upcoming months Loan limits for 2020 make getting mortgage easier Three reasons to buy home at end of year Can you get a mortgage with bad credit? Income and all outstanding loans are key factors to obtain a mortgage Your income is a lifeline to finance a home Don’t be focused on credit when getting a mortgage Why your mortgage goals may not happen Don’t make the mistake of 401(k) home buying Fannie & Freddie change home mortgage appraisals COVID-19-How a mortgage forbearence works How to get a mortgage without providing tax returns The new way to get a mortgage with 1 year income tax returns Four common home buying mistakes to avoid How to create wealth with your income and finances 2019 conforming loan limits rise FHA loan limits for 2019 increase No more VA limits in Jan. 2020 Should you cash out to refinance What makes the most sense? Three pricey loan scenarios to watch A surefire way of making loan process a hassle Changing income and job status may affect mortgage chances Six common mortgage loan scenarios How to lower your debt to income when getting a mortgage How to make your financial profile less intricate Paying off debt to buy a house can be challenging Buy a home now or should I wait? Negotiating the purchase price of a house With the virus, should you be buying a home now? How to get a mortgage if you have been furloughed due to COVID-19 Three reasons you should not buy a home Types of loans based on credit score How the FHA 100-mile rules your ability to rent or buy Three quirky issues that will hurt your mortgage Seven common mortgage mistakes Why your mortgage payment keeps changing The credit score it takes to get a mortgage What to expect in today’s loan process? How 1031 tax-deferred exchanges work Six to avoid when purchasing a home How to use rental income to qualify for a mortgage Mortgage inquiry makes your credit score drop? Why waiting for mortgage rates to get better is a losing proposition Transfer property to family and be protected under Prop 13 FHA requirement might hurt buying chances Purchase price should not be most important factor Finances matter when buying a home Could the 30-year fixed mortgage get to 3 percent? Mortgage rate sounds too good to be true How the mortgage process gets ugly if you have a difficult picture Should you go FHA or conventional for purchasing your first home? Two mortgage process problems you will want to avoid Home value when refinancing What you need to know about the mortgage 4506-t document Don’t make mistakes when getting a mortgage refinance A non-traditional program for self-employed mortgage borrowers Should you buy and build or buy a single family home? How expensive your mortgage will be due to bad credit? The loan process and what not to do Should you refinance with today’s mortgage rates? Be careful getting a mortgage if you have a bankruptcy Cash-out refinance or home equity Lender knows how to purchase business? Read the fine print Cash to payment formula when buying a home A bank statement program might help get a mortgage Pulling credit may not make sense Why the VA mortgage is the best home loan Can you use roommate income to get a mortgage? Best benefit for your first-time home buyer A loan program you may be eligible for based on your credit score Be wary about paying off this type of mortgage Common questions on financed mortgaged insurance loans Things that affect your first-time buyer mortgage options Self-employed income The #1 mistake consumers make when getting a mortgage… How much are closing costs when you purchase a house? Two mortgage loan programs get a better interest rate How much of your mortgage income should be going towards an auto loan? Five quirky refinance scenarios that work Working two jobs makes now easier to get a mortgage How mortgage lender credits work

Should you buy a house with monthly mortgage insurance?

By: Scott Sheldon
November 30, 2018

Buying a home can be an expensive ordeal. You don’t necessarily need 20 percent down or more to purchase a house. Whether or not you should put more money down or less money down is going to depend on what your financial scenario supports and what you are comfortable paying within your monthly budget. Here are some things to consider if you’re going to be purchasing a house with monthly PMI.

Generally, to avoid a PMI you need to have 20 percent down. Purchasing a home with less than 20 percent down is not the end of the world by any means and there are tons of programs that allow you to purchase a house with as little as 3 percent down for conventional and 3.5 percent down for government loans. Both loans mirror each other and depending on the program that you go with your PMI can be dischargeable.

When you purchase a house with less than 20 percent down the lender will assess private monthly mortgage insurance (PMI) which is to insure the lender if you default on the loan.

This is an extra cost by way of a higher monthly payment in exchange for purchasing a house with slightly less cash down. While the PMI can be dischargeable know that the alternative is to purchase a house with 20 percent down. Twenty percent down for example on a $500,000 house is $100,000. Saving for that amount of cash could take years. On the flip side if you were to buy a house with 5 or 10 percent down in the time frame that you could have saved that money the market could have reacted favorably enough for you to refinance and dropping the monthly PMI in the process.

Here’s a quick lowdown on the several types of PMI in the market…

The mortgage insurance is permanent on a FHA Loan with 3.5 percent down. With ten percent down or more the PMI can be petitioned to be discharged after 10 years with 20 percent home equity. Simply put, with an FHA loan plan on refinancing to drop the PMI in the future.

On a conventional loan you have a few more options. If you are purchasing a house with 10 percent down or more that’s the magic number that will allow you to pay mortgage insurance where you could bring your PMI pre-funded / prepaid into escrow without having a monthly PMI payment. You heard that right. Let’s say on the size of a loan that your PMI is $6,000 you could finance that $6,000 which would change your payment just a few dollars per month or you could bring in that extra $6,000 to close at escrow (which by the way can also be in the form of a gift) which would allow you to have a lower monthly mortgage payment while still being able to buy a house indicative of what your market supports.

Whether you go with monthly PMI or whether you have a single pay mortgage insurance either one is dischargeable in the future. The benefit of exploring the PMI in a single pay format is that you can easily save anywhere between $200 to $400 per month in some cases, even more by electing to finance the total cost of the PMI in the loan or bringing those funds to the table at close of the escrow both of which could offer a substantial net tangible benefit to you. If at the beginning, you don’t have quite the 10 percent you could always go with the down payment percentage that you have and refinance when you have the 10 percent home equity and dropping the monthly PMI.

The alternative to mortgage insurance is not purchasing a house. The risks associated with continuing to rent is a variable housing payment based on what your landlord dictates. Paying more in taxes and losing borrowing power is based on the direction of housing prices or interest rates.

Saving for 20 percent down or more for most people, unless they are rapidly saving substantial sums of money each month, is probably not in the cards. Nine times out of ten, market forces will move faster than your ability to save so purchasing a house that you can afford per month with the long-term picture in mind on a fixed rate mortgage is probably a safe and prudent financial bet.

Looking to get a mortgage? Get a no cost quote now.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at