Better off putting 20% down or paying for PMI?

7 Replies

I am looking to buy a SFH and am wondering if it is smarter to just put down 20% or put less down and take on the expense of private mortgage insurance. I'm assuming the cost of PMI is based on the size of the loan and other financials such as credit score and income that demonstrate the buyers ability to pay back the loan? Is one option recommended more than the other?

Do the math. What is the cost of PMI compared to the investment value of the cash generating income when spread over multiple properties.

Investing is all in the numbers.

Is this a hypothetical or an actual situation? If it's an actual situation it may be helpful for you to share your numbers. That will allow people to give you a more informed opinion.

Without knowing any facts, I would say put the 20% down. You will have both a lower monthly payment and no PMI.

What I did on my current house is take the PMI on a house I knew would rapidly appreciate and then refi when I'm at 80% compared to the new value.

I've also bought a significantly undervalued foreclosure that I moved into so I got to use 3.5% FHA, then a year later I pulled a ton of cash out and dropped PMI.

It really depends on how much the PMI costs vs how soon you'll be able to refi based on the specific house AND it depends on what the opportunity cost of the money you would put down is.

@Alexander Felice

On FHA, PMI or MIP, do you pay fixed amount in advance? When reach, 20% equity, do you get refund?

Or is it monthly, and stop when you prove or refinance 80% LTV?

Terry

Other than for a very short while, i cant see paying pmi as part of any long term investment plan. 

Originally posted by @Terry Lao :

@Alexander Felice

On FHA, PMI or MIP, do you pay fixed amount in advance? When reach, 20% equity, do you get refund?

Or is it monthly, and stop when you prove or refinance 80% LTV?

Terry

 you pay a fixed amount built into the monthly bill. It's not an equity, you don't get it back, and it's not really to serve the user. It's insurance for the bank in case you default. LOL

as far as I know, the regulation says new FHA loans can no longer drop PMI once you hit 80%, you must refinance. Up until a few years ago you just had to call them. This is an important fact to know when strategizing for a 2-5 year plan.

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