Green Bay Mortgage News

Avoiding Private Mortgage Insurance - Green Bay Wisconsin

I remember when I was younger and thinking of purchasing my first home.  My mom pulled me aside and said; "Son, you better save up your money before you even think about doing that.  If you don't put 20% down when you purchase a property you have to pay private mortgage insurance (PMI)."  My initial thought was what's PMI?  So I asked, and she said "PMI is added insurance on your loan that protects the lender in the event of a default, not you the borrower."

Now that I have been in the industry for some time.  There is a lot of truth behind that statement.  I have seen multiple loans in the past few months where the PMI was north of $100 a month on a typical $125,000 purchase price here in Green Bay.  This concerned me, especially for first time home buyers where their payment was being stretched to acquire the property they wanted.  I wanted to provide a information blog to let you know that there is alternative options on avoiding PMI with out having to wipe out your entire life savings and putting 20% down on a property.  Before I get into that, let's understand how long they charge PMI for as it doesn't go away fast.

For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price — not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain "higher risk" loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price.

Keep track of your principal payments. Also keep track of what other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal — it's been mostly interest. But property values in many parts of the country have gone through the roof lately. And that can earn you 20 percent equity even if you haven't paid down much principal.

When you think you've reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments! You will need to notify your mortgage lender that you want to cancel PMI payments and you'll need to submit proof that you have at least 20 percent equity. A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is — and most lenders require one before they'll cancel PMI.

Here is what is currently available with purchasing a property to avoid PMI without having to put 20% down.

• USDA Loans (Rural Properties) - No Money down and NO PMI.  This is a fantastic program to consider when purchasing a property in a rural community.
• VA Loans - All properties, must be active duty, retired, or in the reserves to qualify.  Also, must be able to provide a certificate of eligibility for the lender.
• Conventional Loans - You will want to work with a preferred lender who offers Lender Paid Mortgage Insurance (LPMI).  Typically, this program is a slightly higher rate then what you would normally qualify for put you don't have to pay PMI.  We currently have this program available for credit scores 700 or higher with 5% down.
• Home Path - This is Fannie Mae's purchase program.  Allows you the buyer to purchase a foreclosure with 3-5% down, with NO PMI and no Appraisal.  Currently there is a 660 minimum credit score requirement.
• Piggy Back Loan - You can still do a 80% first mortgage, and a stand a lone second mortgage up to 85%.  You would need to put 15% down to acquire this loan.  A strong option to consider if you are stretching the sales price acquiring the property you want and don't quite have that full 20% saved up.

Refinance Options to Avoid PMI.

• VA Refinances - Up to 100% of your homes value on a rate/term transaction.  This is a Federal VA funded program.  No cash out allowed, we just have the ability to pay off your current mortgage debt.
• USDA Streamlines - If you originally purchased your property through USDA, you can streamline your loan at anytime for a better rate either with or without appraisal.  If you don't have any cash to close, you can do the loan with a appraisal and roll in the third party costs.
• Piggy Back Loan - As mentioned above we can split the mortgage debt into a 80% first, and a stand a lone second mortgage for a maximum of the other 5%.
• Conventional Refinances - On a rate/term refinance where we are just paying off the initial loan we can go up to 95% of your homes value, and do the LPMI program.

Interest rates are still very low, and the inventory that's currently available in the market is priced to sell.  There has been no better time in the past 5 years to purchase or refinance to secure a very low interest rate on the biggest payment you make on a monthly basis then right now.