5 ms·

Ignores mortgage insurance for down payments < 20%

by southphillyman 11y ago

ortuna 11y ago
Yea this is usually significant
- inmyunix 11y ago
  I've seen a quote for $100/mo for a $300k mortgage.
  - deleted 11y ago
    [deleted]
  - colinyoung 11y ago
    That's about right.
verelo 11y ago
It might sound a little sarcastic, but i think in the vast majority of cases, if you have a deposit < 20% the right answer is to rent.
- riot504 11y ago
  One area where this might not apply is on VA loans; which applied to me. Currently in PhD program and was able to buy a house with a significantly lower mortgage (22% cheaper per month) than renting. Which eases the pain for wife and children during this time.
  - desigooner 11y ago
    Doctor loans are similar - they don't need PMI but I'm not sure if the interest rates are higher than the regular mortgage loans
  - matwood 11y ago
    VA loans are great. No PMI, no down payment, and listed mostly fixed fees for origination.
- southphillyman 11y ago
  Mostly agree, but I think the vast majority of primary home buyers don't put down 20%
- ryandrake 11y ago
  I don't agree this is true for the vast majority of situations. If you have the income to support the higher monthly payments, it's a viable option. I put down less than 10% and am willing to live with the higher rate and Mortgage Insurance in order to Not Be Renting. And if you can eventually pay the loan down a bit such that you end up with 20% equity, the MI goes away. Median home price in Bay Area is what, $900K or so? 20% of that is $180K in cash. I don't know many people who have this, yet there are plenty of home owners here, and I wouldn't be willing to say that the majority of them made a bad decision.
  - verelo 11y ago
    There are certainly exceptions. When my partner and I purchased our place we only put enough down to avoid the extra insurance for down payments below 20%. With a 2.9% interest rate on our place, most indexes should perform better. Having said that, the cause for my initial comment was just expressing my worry that if everyone was only able to put down a small amount of the total purchase price, then we're likely financing a lot of people who probably cant afford the place they're living in as soon as something small goes wrong. Do we know how people defaulting correlates with their initial down payment size? I'm sure someone has studied this, but I have not been able to find any stats.
    - ryandrake 11y ago
      That would be interesting. My guess is that size of down payment (percent) does correlate with probability of default.
- pessimizer 11y ago
  The median down payment for the middle 50% of homes is 8.8%. http://www.thetruthaboutmortgage.com/median-down-payments-have-surged-for-entry-level-homes/ http://www.thetruthaboutmortgage.com/median-down-payments-ha...
switch007 11y ago
I've not heard of mortgage insurance. Don't lenders just give higher interest rates to riskier borrowers?
- altcognito 11y ago
  No, for reasons which relate to overconfidence of bankers and their ability to rate credit: https://en.wikipedia.org/wiki/Mortgage_insurance#History https://en.wikipedia.org/wiki/Mortgage_insurance#History
- sjg007 11y ago
  Both apply. Rate is typically credit based but also depends on the loan amount. PMI is for <20% down except in special cases.
- yourapostasy 11y ago
  If you are a higher-than-average risk borrower and put down less than 20%, you get hit with both a higher interest rate than average risk borrowers receive, and you must pay mortgage insurance until you reach 20% equity. To add insult to injury, it is extremely common for the mortgage insurance companies and the mortgage servicing companies (not always the same) to simply keep charging borrowers the mortgage insurance fee even after the borrower reaches 20% equity.
  - extra88 11y ago
    Mortgage insurance payments end at 20% equity but you must ask for it to end. PMI automatically ends when you reach 22%. It also automatically ends if you are halfway through your mortgage schedule (e.g. 15 years for a 30 year mortgage), regardless of how much equity you have in the home. http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-from-my-loan.html http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove...
100k 11y ago
Was looking for this comment. Also ignores HOA dues (if the home is a condo).
- chockablock 11y ago
  Actually they got that one: There are sliders for both 'common fees' and the portion of same that is tax-deductible.
hippich 11y ago
recently i was pre-approved for a mortgage with just 5% down. this was for two loans actually, one is conventional 80% with typical interest rate, and one 15% 15 years loan at 6.5% interest rate. My plan was to pay off small one quickly and just use it to avoid selling current house before moving into new one. No PMI.
- extra88 11y ago
  I think that's called a "piggyback mortgage." Yours is an extreme example (sounds like you'll pay off the 15 year loan within a year) but generally used when you can pay more initially because it's easier to pay off a loan early than to pay extra on your mortgage to get to 20% equity and end mortgage insurance payments. If you can get a low enough interest, the piggyback can be preferable (to PMI) even if you're not going to pay it off early, you just have to do that math.

Ignores mortgage insurance for down payments < 20%

ortuna 11y ago

Yea this is usually significant

inmyunix 11y ago
I've seen a quote for $100/mo for a $300k mortgage.
- deleted 11y ago
  [deleted]
- colinyoung 11y ago
  That's about right.

verelo 11y ago

It might sound a little sarcastic, but i think in the vast majority of cases, if you have a deposit < 20% the right answer is to rent.

riot504 11y ago
One area where this might not apply is on VA loans; which applied to me. Currently in PhD program and was able to buy a house with a significantly lower mortgage (22% cheaper per month) than renting. Which eases the pain for wife and children during this time.
- desigooner 11y ago
  Doctor loans are similar - they don't need PMI but I'm not sure if the interest rates are higher than the regular mortgage loans
- matwood 11y ago
  VA loans are great. No PMI, no down payment, and listed mostly fixed fees for origination.
southphillyman 11y ago
Mostly agree, but I think the vast majority of primary home buyers don't put down 20%
ryandrake 11y ago
I don't agree this is true for the vast majority of situations. If you have the income to support the higher monthly payments, it's a viable option. I put down less than 10% and am willing to live with the higher rate and Mortgage Insurance in order to Not Be Renting. And if you can eventually pay the loan down a bit such that you end up with 20% equity, the MI goes away. Median home price in Bay Area is what, $900K or so? 20% of that is $180K in cash. I don't know many people who have this, yet there are plenty of home owners here, and I wouldn't be willing to say that the majority of them made a bad decision.
- verelo 11y ago
  There are certainly exceptions. When my partner and I purchased our place we only put enough down to avoid the extra insurance for down payments below 20%. With a 2.9% interest rate on our place, most indexes should perform better. Having said that, the cause for my initial comment was just expressing my worry that if everyone was only able to put down a small amount of the total purchase price, then we're likely financing a lot of people who probably cant afford the place they're living in as soon as something small goes wrong. Do we know how people defaulting correlates with their initial down payment size? I'm sure someone has studied this, but I have not been able to find any stats.
  - ryandrake 11y ago
    That would be interesting. My guess is that size of down payment (percent) does correlate with probability of default.
pessimizer 11y ago
The median down payment for the middle 50% of homes is 8.8%. http://www.thetruthaboutmortgage.com/median-down-payments-have-surged-for-entry-level-homes/ http://www.thetruthaboutmortgage.com/median-down-payments-ha...

switch007 11y ago

I've not heard of mortgage insurance. Don't lenders just give higher interest rates to riskier borrowers?

altcognito 11y ago
No, for reasons which relate to overconfidence of bankers and their ability to rate credit: https://en.wikipedia.org/wiki/Mortgage_insurance#History https://en.wikipedia.org/wiki/Mortgage_insurance#History
sjg007 11y ago
Both apply. Rate is typically credit based but also depends on the loan amount. PMI is for <20% down except in special cases.
yourapostasy 11y ago
If you are a higher-than-average risk borrower and put down less than 20%, you get hit with both a higher interest rate than average risk borrowers receive, and you must pay mortgage insurance until you reach 20% equity. To add insult to injury, it is extremely common for the mortgage insurance companies and the mortgage servicing companies (not always the same) to simply keep charging borrowers the mortgage insurance fee even after the borrower reaches 20% equity.
- extra88 11y ago
  Mortgage insurance payments end at 20% equity but you must ask for it to end. PMI automatically ends when you reach 22%. It also automatically ends if you are halfway through your mortgage schedule (e.g. 15 years for a 30 year mortgage), regardless of how much equity you have in the home. http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove-private-mortgage-pmi-insurance-from-my-loan.html http://www.consumerfinance.gov/askcfpb/202/when-can-i-remove...

100k 11y ago

Was looking for this comment. Also ignores HOA dues (if the home is a condo).

chockablock 11y ago
Actually they got that one: There are sliders for both 'common fees' and the portion of same that is tax-deductible.

hippich 11y ago

recently i was pre-approved for a mortgage with just 5% down. this was for two loans actually, one is conventional 80% with typical interest rate, and one 15% 15 years loan at 6.5% interest rate. My plan was to pay off small one quickly and just use it to avoid selling current house before moving into new one. No PMI.

extra88 11y ago
I think that's called a "piggyback mortgage." Yours is an extreme example (sounds like you'll pay off the 15 year loan within a year) but generally used when you can pay more initially because it's easier to pay off a loan early than to pay extra on your mortgage to get to 20% equity and end mortgage insurance payments. If you can get a low enough interest, the piggyback can be preferable (to PMI) even if you're not going to pay it off early, you just have to do that math.