Mortgage Loans

[LondonMassey]

I was reading Shane's post from 2010 of FHA vs Conventional and it said that PMI is required for at least 5 years with FHA, is that even AFTER you pay up to 20% of it off?  I plan on having the house that I'm buying paid off in under 5 years.  I will be at 20% by this time next year.  Am I still going to be stuck paying PMI?

[203bravo]

FHA's monthly mortgage insurance payments will be automatically terminated when these conditions occur:

• For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.
• For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.
• Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.

[LondonMassey]

So, I'll still be stuck paying PMI for 5 years? What if the house is paid for by then?  It just sucks because the actual mortgage before taxes will be $250/mo... PMI will be around $80/mo.  That's a hefty little chunk a month vs the principle and interest.

[cdtotten]

Yes, no matter how quickly you pay down the loan, you must keep the PMI payment for a minimum of 5 years. Why would you finance FHA if you are going to make such accelerated payments?

[LondonMassey]

i won't qualify for conventional. I wanted to put a large chunk of my tax return every year onto the principle. The house was built in 2006, so I wouldn't expect to have any real major issues as far as repairs go and want to just get it done. I pay everything in advance.

[203bravo]

Consider a 15 year loan.. then the MIP can be dropped as soon as the LTV is under the limit.

[thankfulheart]

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LondonMassey wrote:
i won't qualify for conventional. I wanted to put a large chunk of my tax return every year onto the principle. 

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I would just point out that you should be adjusting your W-4 so you don't get a "tax return" at the end of the year, giving Uncle Sam a free loan on YOUR money.  By adding that to your regular paycheck and paying it towards principal, you will be in a much better position faster.  My goal is to NEVER get a refund.

[LondonMassey]

Being a one income household, i dont have enough income to be approved for a 15 yr, it would put my back end DTI too high to qualify.

As for my tax return, I receive the child credits and earned income. I dont have federal taxes taken out. I am a single mom of 3 and work 5 days a week. My returns are about 7000, and as of this year, will start getting taxes from the dad for back child support. I'm owed $19,000.

[thankfulheart]

LondonMassey wrote:
Being a one income household, i dont have enough income to be approved for a 15 yr, it would put my back end DTI too high to qualify.

As for my tax return, I receive the child credits and earned income. I dont have federal taxes taken out. I am a single mom of 3 and work 5 days a week. My returns are about 7000, and as of this year, will start getting taxes from the dad for back child support. I'm owed $19,000.

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Ahhhh...makes perfect sense.  IMO, this is one of those times where you will have to make the decision you can feel comfortable with.  Since the mortgage interest will be deductible, will it make the most of your money to pay off the mortgage early or to put the tax returns into an investment of some kind? It might be worth your time/money to meet with a financial planner to discuss the scenarios.

[LondonMassey]

Deducting the interest on my taxes will make no difference for me since the actual mortgage amount is so little.  My itemized deductions still wouldn't be more than the $8500 standard deduction I take.  Also, my son receives SSI.  I didn't have the broker include that into my income because he is hospitalized sometimes and doesn't receive it while he's getting treatment.  With SSI, I'm not able to have more than $2000 on hand because it's income based.  My tax returns are counted as income after 1 year, so I can't save them without causing my son to lose SSI and medical...

The only thing I could think of that would be the best to do with my returns is invest them in the house.  That way I don't have the funds in an account and jeopardize my son, and will have a home that is paid for.  I sure don't want a bunch of cash laying around and "hiding" it from SSI is illegal... but I'm also frugal and buy everything second hand, refurbished, clearance, etc. We have nice things, but I sure don't pay full price for any of it.