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Jerroldtrice
Posts: 17
Registered: ‎06-08-2012
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The best thing to do with PMI insurance

We have been pre-approved and are going with new construction on an FHA loan. The LO told us she would roll the $3,377.50 for PMI insurance into the loan, however, it looks like it would save us $200 a month by paying it upfront.

 

Is there a greater benefit for doing it one way over the other? Or is it just personal preference?

 

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Walt_K
Posts: 3,065
Registered: ‎11-02-2009
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Re: The best thing to do with PMI insurance

[ Edited ]

Are you sure about your numbers?  What is upfront MIP now, 1.75%?  If so, for an upfront MIP of ~$3300, you're talking about about a $200K loan right?  Financed over 30 years at 4%, you're talking about $2 per month.  Financed over 15 years at 4%, more like $20 per month. 

 

I might be missing something, I'm no expert on this.

 

ETA:  Don't know why I made that so complicated.  No matter what the total loan amount is, $3375 financed over 30 years or 15 years is the same.  I used 4% as an example of what your interest rate might be.  In any event, I don't see how this is going to save you $200 per month. 


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Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
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pizzadude
Posts: 9,674
Registered: ‎01-28-2010
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Re: The best thing to do with PMI insurance


Jerroldtrice wrote:

We have been pre-approved and are going with new construction on an FHA loan. The LO told us she would roll the $3,377.50 for PMI insurance into the loan, however, it looks like it would save us $200 a month by paying it upfront.

 

Is there a greater benefit for doing it one way over the other? Or is it just personal preference?

 

I love this place, all of you are great!!


Another factor to consider is the tax deductibility of PMI.   Assuming that it is currently deductible ( I think it is but not 100% certain ), if you paid it all upfront then you could claim it as a deduction for tax year 2012.   In future years it may or may not be deductible, tax laws change.....

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX
Member
Jerroldtrice
Posts: 17
Registered: ‎06-08-2012
0

Re: The best thing to do with PMI insurance

[ Edited ]

Walt_K wrote:

Are you sure about your numbers?  What is upfront MIP now, 1.75%?  If so, for an upfront MIP of ~$3300, you're talking about about a $200K loan right?  Financed over 30 years at 4%, you're talking about $2 per month.  Financed over 15 years at 4%, more like $20 per month. 

 

I might be missing something, I'm no expert on this.

 

ETA:  Don't know why I made that so complicated.  No matter what the total loan amount is, $3375 financed over 30 years or 15 years is the same.  I used 4% as an example of what your interest rate might be.  In any event, I don't see how this is going to save you $200 per month. 



As far as I'm aware, you don't pay PMI insurance for the full length of the loan, just until you have enough equity in your home and the LTV ratio is below 80%.

Senior Contributor
Walt_K
Posts: 3,065
Registered: ‎11-02-2009
0

Re: The best thing to do with PMI insurance

[ Edited ]

Jerroldtrice wrote:

Walt_K wrote:

Are you sure about your numbers?  What is upfront MIP now, 1.75%?  If so, for an upfront MIP of ~$3300, you're talking about about a $200K loan right?  Financed over 30 years at 4%, you're talking about $2 per month.  Financed over 15 years at 4%, more like $20 per month. 

 

I might be missing something, I'm no expert on this.

 

ETA:  Don't know why I made that so complicated.  No matter what the total loan amount is, $3375 financed over 30 years or 15 years is the same.  I used 4% as an example of what your interest rate might be.  In any event, I don't see how this is going to save you $200 per month. 



As far as I'm aware, you don't pay PMI insurance for the full length of the loan, just until you have enough equity in your home and the LTV ratio is below 80%.


You're talking about rolling your upfront MIP into the loan.  That is different than the annual MIP premium that you have to pay.  If your loan is for 200K and you pay your upfront MIP in cash, you will have a $200K loan.  If you roll your upfront MIP into the loan, you will have a $203,375 loan.  So you will be paying that over the course of the entire loan term.  It's easy to figure out the difference in the payment, just put the two figures into a mortgage calculator.  It will not be a difference of $200 per month.

 

ETA:  I think what you might be confusing is whether you can eliminate the annual MIP, which very well could save you $200 per month.  But to do that, you'd have to be putting down a sufficient downpayment so you are at 78% LTV or whatever it is.  You can't eliminate the annual MIP by paying the upfront MIP at closing. 


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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Senior Contributor
Walt_K
Posts: 3,065
Registered: ‎11-02-2009
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Re: The best thing to do with PMI insurance

Ok, to further complicate this, here is what I think OP is looking at.

 

$200K loan.  Based on 30 years and minimum downpayment, you'd have Annual MIP of 1.25% or $2500 over 12 months, which is ~$200 per month.  If you're putting down more than 5%, you get 1.2% which is exactly $200 per month.  The only way to get rid of that (I think), is to switch to a 15 year loan program and put down at least 22%.  Then you would be exempt from annual MIP.  Of course, by making it a 15 year loan, you're going to have a higher monthly payment (and there's still the issue of needing 22% down).  So you're not really lowering your payment by $200/month, but you're saving money that would otherwise go to mortgage insurance.

 

The upfront MIP is a separate payment.  It is 1.75% of the original loan amount.  Financing it into the loan is going to make much less of a difference on a monthly payment basis as outlined in previous posts. 

 

I hope this is helpful.


Starting Score: ~500 (12/01/2008)
Current Score: EQ 681 (04/05/13); TU 98 728 (01/06/12), TU 08? 760 (provided by Barclay 1/2/14), TU 04 728 (lender pull 01/12/12); EX 742 (lender pull 01/12/12)
Goal Score: 720


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Member
collectingblues
Posts: 9
Registered: ‎07-17-2012
0

Re: The best thing to do with PMI insurance

I'll be paying upfront when I buy -- and it's a large part of why I'm going for a conventional loan instead of FHA. With conventional, once you pay that upfront, you're done -- you don't have to continually pay it for five years. With FHA, you pay the MIP upfront, and then *still* have to pay it monthly.

I won't be rolling it into the loan; I'll be paying it as part of the closing costs. But at the end of the day, it'll "save" me around $100 over FHA, even though I'll have to bring more to the table. For me, that means that I'll be able to get more of a house for the same amount of money.

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Booner72
Posts: 3,889
Registered: ‎05-24-2011
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Re: The best thing to do with PMI insurance

You have to pay MI for five years.
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Member
collectingblues
Posts: 9
Registered: ‎07-17-2012
0

Re: The best thing to do with PMI insurance

[ Edited ]

Booner72 wrote:
You have to pay MI for five years.

Not if you don't do FHA. With conventional programs, you pay it unti you hit the 78 percent, or unless you pay it all upfront.

 

Edit -- Ooops! Just saw that the OP is doing FHA. OP -- is there anyway you can swing a conventional loan instead?


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