Confused about PMI

[BIRDWRITER]

Hi, hubby and I just signed a contract to build a new home. We were preapproved for 300K, and our house will total out at about 305K. We will not know exactly how much of a down payment we will have until our old home sells. We have put down 15K in earnest money, and will have about $25-30K more if we're not underwater on our old home--too early to tell. Since we probably won't have 20% down, do we automatically have to pay PMI? Our LO is not very available or helpful (we will use a different one, but we were preappoved by the builder's mortgage company). I know if we don't come up with much more than the initial 15K we will be forced into FHA, but what if we are nearing 15% down? Someone told us there is something called LPMI, but the explanation was sketchy. 

thanks!

[creditisbetter2]

With the limited knowledge that I have on this subject, here is what I was told. If you pay less than 20 percent then you pay pmi until you have paid down that amount. What state are you in because the FHA loan limit here in Dallas for a single family is 271k and if we go over that we either have to pay the difference in cash or get a conventional where we would put down 5 percent. Do you know the FHA maximum in your state? That could change a lot of things in your scenario.

[BN3]

I think it does depend by state, but from what I gather, if you put less than 20% down, you pay PMI on the balance and as you pay, the PMI goes down (based on the balance of the loan).  Now, I also heard that some (if not all) require a minimum of 5 years of payments of PMI even if you get the balance to 80% of the borrowing amount. So, if you pay PMI, you pay at least 5 years.  If you are under 80% in that 5 years, there is no more PMI, if you still aren't under 80% you continue to pay PMI until you reach 80%.   Again, this could vary by state/lender/etc...

[creditisbetter2]

BN is correct, I just looked over my loan paperwork and it says that and it also says that once you reach the five years and the 20%, there are two ways that you can stop paying the pmi.  One way is for it to fall off automatically and another way is to notify them (which "them" I am not sure of) in writing that you want the pmi to stop because you've reached your limit.  My documents also mentioned that you can make double payments per month to get the rate down faster but I am not sure if the 5 years is an and/or in that case.  That might be something you ask your loan officer to see if it's even worth paying down the pmi early.

[doublespaces]

My LO says my PMI is going to be on my loan no matter what for 5 years.... Seriously makes me want to refinance in a year or something when I have the cash to get rid of it. Probably not worth it though in the end, just hate to see myself throwing 10-15k away.

[Walt_K]

PMI is minimum of 5 years if you have FHA financing.  For conventional financing, I don't think there is any time limit.  You just have to get to 20% or more equity.  This was just posted by one of the more knowledgeable mortgage posters a couple days ago.  Not sure if the 20% is measured against initial loan amount or appraised value of home.

[Booner72]

My understanding is that you can end PMI on an FHA sooner than 5 years if you reach the 20% equity status.  If your appraisal comes in rock solid high, you wouldn't have to pay PMI at all (over 20% of purchase price).

[Walt_K]

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@Booner72 wrote:

My understanding is that you can end PMI on an FHA sooner than 5 years if you reach the 20% equity status.  If your appraisal comes in rock solid high, you wouldn't have to pay PMI at all (over 20% of purchase price).

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Digging a little further, I found this:http://www.fhahomeloanmortgage.com/fha_mortgage_insurance.shtml

It states that for 15 year loans only, the premium (which I understand is like PMI for FHA loans) can be avoided if the LTV of the loan is initially 90%. Otherwise, you have to pay it until LTV drops below 78%. 

For all other loans, you have to pay the premium for a minimum of 5 years.

So, is this what you meant when you said that you can end the premium in less than 5 years, i.e., that you can end it in less than 5 years only if you have a 15 year mortgage.  Or is there some other way to end sooner?  Thanks.

[Booner72]

Hi Walt.  I thought I could end it as soon as I got to 78%.  I didn't know FHA's had to be paid for 5 years.  That's news to me.  I wouldn't be surprised if you are correct and I have it wrong though.

[Booner72]

As says the title of this post, I too am confused about PMI.