PMI (Private Mortgage Insurance) Tricks & Tips

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PMI (Private Mortgage Insurance) Tricks & Tips

Stephen Wiater
Highlands, NJ · Member since 2016 · 52 posts · 9 votes

Hello All,

I am trying to get approved for a FHA loan and I understand that there is PMI insurance in most cases.

My questions is:

Is there a way to not pay the PMI payment at all or a very low PMI payment?

any tricks and tips regarding this matter or the whole FHA loan process would be much appreciated!

Thank you guys!

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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
Originally posted by @Stephen Wiater:

Hello All,

I am trying to get approved for a FHA loan and I understand that there is PMI insurance in most cases.

My questions is:

Is there a way to not pay the PMI payment at all or a very low PMI payment?

any tricks and tips regarding this matter or the whole FHA loan process would be much appreciated!

Thank you guys!

Hate to be the wet blanket, but here's what you need to hear, which isn't what you want to hear...

The above posters are not wrong about PMI, but FHA loans do not have PMI.

They have FHA MIP, which is non-negotiable, does not vary by lender, is set by HUD, and is 0.85%/12 per month no matter who you are or what your scenario is, if you're putting 3.5% down.

The only choice you have is to finance the FHA UFMIP of 1.75%, or pay 1.75% upfront. Assuming good credit, however, that's not really a choice since 3.5% + 1.75% = 5.25% = why not do conventional 5% down where the full 5% is all equity, not 3.5% equity and 1.75% gone into space?

Conventional non-FHA financing, there is all sorts of cool stuff we can do with PMI, particularly if you're putting at least 10% down. Conventional financing has options as low as 3% down.

PMI stands for private mortgage insurance. FHA is a government loan, not private sector.

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  • Manny Lopez
    Santa Rosa, CA · Member since 2017 · 4 posts · 4 votes
    9y

    I am buying a home now. I will be required to pay PMI because i am putting down 15%, anything less than 20% you will pay PMI. What I didnt know was that you are NOT required to refinance in order to get rid of the PMI payment.

    I learned recently your home would only need 20% in order to just have your mortgage broker get rid of the PMI payment. SOme brokers will tell you to refinance because for them it is another commission based transaction (in some cases makes sense if you want some cash out tho) however, I have 5% equity to go. I will be saving appx $350/month once that happens and i wont need to refi.

    2Reply
  • Alexander Zurn
    Lender · PA · Member since 2016 · 214 posts · 140 votes
    9y

    @Stephen Wiater there are ways to avoid PMI, however, those ways typically include jacking up the rate to cover the loss of PMI.

    Many lenders will offer a Lender Paid PMI and in order to cover their payment of it the rate will go from 4.25% to 5.25% (for example, not exactly that). If commited to going FHA, you'll have to pay for the PMI in some way shape or form.

    Other options: you could try going conventional. Might I also suggest looking into New Jerseys First Time Homebuyer program. I believe they offer some type of down payment assistance that will help you keep the reserves you have saved up.

    Look into here:  NJ State First Time Homebuyer - look for the Smart Start program

    Good luck!

    2Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    Hey @Stephen Wiater Yes, you'll have to pay PMI, you can pay the loan down quicker to get to a point to refi, or you can get a shorter loan to create a quicker pay off date. Please see below.

    https://www.fha.com/fha_requirements_mortgage_insu...

    Hope this helps! 

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  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Manny Lopez Sometimes the broker may get that double commission, and sometimes if you go with the same institute for your mortgage than they wave the closing costs and fees since you are going to continue that mortgage with the same lender. Check into that when/if you go to REFI.  

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  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    Thank you for the info guys!  @Peter Mckernan @Alexander Zurn @Manny Lopez

    1Reply
  • Katherine S.
    Investor · Grosse Pointe Shores, MI · Member since 2017 · 160 posts · 74 votes
    9y

    I seem to remember that you had to pay PMI for a minimum of 5 years, despite how much equity you had. The only way to get rid of it was to refinance. Has this been changed?

    0Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    That's a good question but I have no idea @Katherine S. I heard that if you do get a FHA loan that you have to pay the PMI for atleast a year before you refi but Im not even sure if this is true or not...

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by @Stephen Wiater:

    Hello All,

    I am trying to get approved for a FHA loan and I understand that there is PMI insurance in most cases.

    My questions is:

    Is there a way to not pay the PMI payment at all or a very low PMI payment?

    any tricks and tips regarding this matter or the whole FHA loan process would be much appreciated!

    Thank you guys!

    Hate to be the wet blanket, but here's what you need to hear, which isn't what you want to hear...

    The above posters are not wrong about PMI, but FHA loans do not have PMI.

    They have FHA MIP, which is non-negotiable, does not vary by lender, is set by HUD, and is 0.85%/12 per month no matter who you are or what your scenario is, if you're putting 3.5% down.

    The only choice you have is to finance the FHA UFMIP of 1.75%, or pay 1.75% upfront. Assuming good credit, however, that's not really a choice since 3.5% + 1.75% = 5.25% = why not do conventional 5% down where the full 5% is all equity, not 3.5% equity and 1.75% gone into space?

    Conventional non-FHA financing, there is all sorts of cool stuff we can do with PMI, particularly if you're putting at least 10% down. Conventional financing has options as low as 3% down.

    PMI stands for private mortgage insurance. FHA is a government loan, not private sector.

    5Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    Thanks Chris for being straight up. I appreciate the info. I was unaware that I could even do a conventional loan as low as 5% or even 3%, I will definitely look into that rather then the FHA.

    Are there ways to tie the closing costs into the mortgage instead of using several thousands of dollars for that because I will be in better shape if I can put this 4K toward the down payment rather then save it for all the closing cost@Chris Mason

    0Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    @Chris Mason

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    9y
    I as speaking to a lender recently about buying a SFR with 15 percent down and they said I could pay around 700 bucks extra at closing to just get rid of PMI forever, otherwise it'd be 35 a month until I hit 20 percent equity. I'm not sure which situation is better, but it gives you options
    0Reply
  • Michael Cohen
    Investor · Towson, MD · Member since 2014 · 472 posts · 257 votes
    9y
    Originally posted by @Stephen Wiater:

    Are there ways to tie the closing costs into the mortgage instead of using several thousands of dollars for that because I will be in better shape if I can put this 4K toward the down payment rather then save it for all the closing cost@Chris Mason

     Hi Stephen - There are several ways to mitigate closing costs, including lender-paid closing costs, seller concessions, etc. As long as your realtor and lender are aware that's your desire they can structure the deal correctly. Both methods are very common.

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y

    @Michael Cohen is of course spot on @Stephen Wiater. 

    • You can swap rate for fees, fees for rate. The larger the loan amount, the more bang for your buck 0.125% to rate gives you because the value of that 0.125% is calculated as a percentage of the loan amount. 
    • If you offer $510k for a home and ask for a $10k seller credit, a rational seller advised by their agent will simply view it as "really" a $500k offer. Home needs to appraise for $510k for this to work.
    2Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    Ok great. Thanks Michael ill be sure to mention that to my real estate agent to see what they can do! @Michael Cohen

    1Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    @Chris Mason so let me ask you this, is it smarter to put more of a down payment down instead of keep the fees aside for the closing costs? what do you normally suggest ? by the way I am looking at a duplex for 315k in Bayonne NJ so the down payment would be about 15k if I can get the 5% conventional loan

    0Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    9y
    Originally posted by @Stephen Wiater:

    @Chris Mason so let me ask you this, is it smarter to put more of a down payment down instead of keep the fees aside for the closing costs? what do you normally suggest ? by the way I am looking at a duplex for 315k in Bayonne NJ so the down payment would be about 15k if I can get the 5% conventional loan

     I'd suggest finding a lender familiar with the Freddie Mac Home Possible program and going from there. It has income limits by census tract, but here in the Bay Area surprisingly large swaths of real estate (eg, 90% of Oakland) are "no income limit" census tracts because they are looking at 2010 Census data (eg, middle of the Great Recession when the mortgage industry was imploded) to determine which census tracts are "under-served" by the mortgage industry. So we have a little window of opportunity that will last until the 2020 Census. 

    Do a side by side with a local lender familiar with both, look at numbers from there.

    The Home Possible program, which will go for 95% LTV on a 2-4 unit property that is owner occupied, is what fills the gap in between 3.5% down FHA 2-4 units, and 15% down Fannie Mae owner occupied duplex. Do the side by side, but in general if you have good credit it will be a better deal overall.

    2Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    This seems like great advice, thanks a lot! @Chris Mason

    0Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    9y

    Pay me now or pay me later. Loan rates are based on RISK, a perceived higher risk, a higher rate.  Having more skin in the game and all things being equal there is a lesser perceived risk, lower rate.  The rules are somewhat arbitrary an change regularly.  

    Cash preservation is a big challenge for most investors and paying extra to keep your cash on hand is often the better play.  If the deal is solid and the cost of the money does not ruin the deal, then go for it.  It is just one number on a page.  Current rates are well below historical trends.  The outlook of RE will change as the rates start to rise.

     I recommend calling around to see what programs are available at this moment.  They are always changing.  

    0Reply
  • Stephen Wiater
    OP
    Highlands, NJ · Member since 2016 · 52 posts · 9 votes
    9y

    Thanks for the advise Lesley @Lesley Resnick

    0Reply
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