Before I even start, read all the way to the end for some valuable information.
Unless you put 20% down on a home, you most likely have had to pay PMI (or mortgage insurance) as part of your monthly mortgage payment. This is the only insurance that you will probably ever pay for that you, the consumer, will never reap the benefits of. Many people pay this monthly fee without even know what it is. The simplest way to explain mortgage insurance is by saying that if you ever default on your mortgage, the PMI keeps the lender from taking a loss on your mortgage.
Mortgage insurance has always seemed like a waste of money when you are the one paying it, but it was always such a low portion of your payment and it only lasted for five years, so it wasn’t that huge of a deal…….until now. In April of 2013, the PMI rate went up pretty drastically. For a $130,000 mortgage, you are now looking at paying approximately $140 per month in PMI. You think that’s bad? Now it never drops off. So if you have a 30 year mortgage, that is how long you will be paying that PMI. That is a lot of stinking money. When the President raised this rate, I really don’t think he realizes how many people it would keep from buying a house, but in certain price ranges, that hike in rate made a difference between qualifying and not qualifying.
I’m here to give you a couple of ideas to reduce your PMI or even eliminate it all together.
1) Consider purchasing your next home in an area that qualifies for the USDA Rural Development Program. Closest to the OKC Metro area, this would include anything in Grady County or McClain County (Blanchard, Newcastle, Tuttle, Chickasha, Purcell, etc). This loan program does not require a down payment and the PMI rate is super low.
2) If you are a CDIB cardholder (Native American), take advantage of your heritage and utilize this loan program. The PMI rate is lower and you are only required to out down 2.5% down instead if 3.5% like in an FHA.
3) If you are a Veteran, use the VA loan and get a zero down loan without any PMI. Unless you have a disability though, your funding fee is going to immediately use up some of your equity, so keep that in mind when picking out your property. I like to try to help my VA buyers find properties that are lower than market value. Unfortunately, the good loan program does come at a cost.
4) if you are a bit open-minded and can look through some of the dirt and grind that sometimes comes with foreclosures, try to get hold of a Fannie Mae property. These properties will typically qualify for either a Homepath Mortgage or a Homepath Renovation Mortgage. Without going into too great of detail, I love doing these programs for my buyers and I love selling Fannie Mae properties. You have to out 3% down payment, but you do not have to pay any PMI whatsoever. If it qualifies for the Homepath Renovation Mortgage, you can finance some repairs or upgrades to the property into the loan as well. These usually include flooring, painting, countertops, etc.
5) Many people believe you have to have 20% down in order to obtain a conventional loan, but that is not true. You only need 5% down to get a conventional loan, which also gives you a lower PMI rate than you get with FHA, but if you do the rare 5/15/80 Program, where you put 5% down, then get a loan for 15% and then another loan for 80%, that eliminates your PMI requirement, because technically on paper your down payment is the combination of the 5% and the 15% second mortgage.
I spend a lot of time working with lenders and finding what the best deals are fe my buyers. If I can be of any assistance, please call me and we will see what the best scenario is for your situation.