What can we do when buying a home to avoid having to get PMI?
We are buying a home worth $612,000. We are bringing $80,000 for the down payment. Our current home is underwater, which we will rent. We are considering doing an 80-20 to avoid PMI. However, with the second mortgage prime high, this is not helping us with getting a lower monthly payment. Is there anything else we can do? We have no means to get another $45,000 for a 20 percent down payment. The delivery date for the new home is July, so we need to do something quickly.
In my opionion, if the 45k isnt there, it isnt there, yet. I was in a similar situation to this a few years ago, and had to pay the PMI. but after about 2 years I was able to refinance the home, and the equity growth of the property eliminated the PMI. I would not suggest getting a loan or adding debt for the sake of PMI. I would also consider speaking to various loan officers on what options are out there! you never know what the next person will know!
-Jordan Jones, RFC
It strikes me that the 80-20 option is an "all or nothing" alternative with no down payment at all. Talk to lenders about taking a first mortgage for 80%, avoiding PMI, then a Home Equity LIne of Credit (HELOC), not a structured loan, for the $45,000, which is only 7.35% of the home value. The HELOC should have flexible terms, interest only payments, and you can voluntarily pay down the principal as quickly as possible to improve your future monthly cash flow.
If you are truly concerned about PMI or can't afford it - you may want to hold off until you can come in with a full 20% down payment.
The other option- you touched on- is a second mortgage - which comes with a higher rate, but you could make an effort to pay this down more quickly to help ease the pain of the higher interest rate that it comes with.