Avoiding Private Mortgage Insurance

As of 2008, most lenders are not offering combo loan programs, so borrowers who used to have the option of 80-20 financing or 80-15-5 financing are doing loans with PMI -- either monthly mortgage insurance and up-front or lender-paid mortgage insurance. Ask about it when we talk.

Private Mortgage Insurance, or PMI, is required on any loan when the ratio of the first mortgage loan balance to the value of the property (loan to value or LTV) is greater than 80%.  Most people think of this ratio being met only by putting down a 20% down payment, but putting down 20% is not the only way to avoid paying mortgage insurance.

A combination of two loans -- a first and second mortgage -- accomplishes the same first mortgage loan-to-value (LTV), and therefore the loan is not subject to the requirement of mortgage insurance.

Here is an example:
A customer is purchasing a $200,000 home and puts down 10%.  The customer also does a second mortgage for 10%.  Therefore, the down payment is $20,000, the second mortgage is $20,000 and the first mortgage balance is $160,000.  Because the first mortgage balance is 80% of the price of the home being purchased, the first mortgage is not required to have mortgage insurance.  This type of scenario would be called an 80-10-10 loan or a piggy-back loan or even a combination loan.

Although underwriting requirements differ for different loan programs, customers can also set up loans with different down payment amounts and still avoid paying PMI -- (80-15-5) and even (80-20).  

Please call or email for more information about doing a first and a second mortgage combination.

Sometimes it is actually BETTER to pay PMI . . . ask me about it when we talk!!

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