Know of any conventional lenders who don't require PMI?

17 Replies

Hi BP! Do any of you know of any conventional banks who will lend with no mortgage insurance without 20% down on a primary residence? I read about a program with Bank of America. 

http://money.cnn.com/2016/02/22/real_estate/bank-of-america-low-down-payment/

Has anyone utilized this program? I am looking for a South Carolina lender. 

Thanks!

Hi @Melissa Searing ,

"No PMI" is lender-paid PMI with a bumped rate paired with a marketing scheme.

It's great for lenders because it has a "built in" need for you to refinance once at 20% equity, to get the lower 20% equity + no PMI interest rate. We obviously do not sit here and get paid the same regardless of how many mortgages we do, so anything that has a built in refinance mortgage is great for lenders.

PMI is generally better for borrowers because it drops off automatically, without the need to refinance. And, in case rates go up, your rate is still fixed for 30 years. "Refinance to drop lender-paid PMI" is subject to future-current rates, which may be higher.

Oh wow, thanks @Chris Mason . I have been reading other threads on which people talk about LPMI, but they also say there are a few banks offering true "no PMI" loans. I read that BofA did this because they want to get away from FHA due to the millions they had to pay in fees for underwriting errors and they want to offer something comparable for first time home buyers. I first heard about this notion of "no PMI" on this week's BP "newbie" podcast where the guest found a bank which kept the standard interest rate and did not require 20% down for no PMI.
I am so glad you told me about the marketing scheme, though, and I will be sure to look out for forced refinance and and bumped interest rate.

Hi @Melissa Searing ,

Even that BofA thing you linked to is just lender paid PMI. It's a standard Fannie Mae loan product, just re-branded & with lender-paid PMI. Here it is with Fannie Mae branding, but without the LPMI layered on top: https://www.youtube.com/watch?v=2BNfRtb7TgY

I've had people try to 'negotiate' away their PMI with me using a BofA quote (I've seen that article you linked many times, it was a great paid advertisement ahem excuse me 'news article' that went viral), and it's always identical to LPMI given the pricing on the day the "no PMI" Loan Estimate was generated. It's always easy to "match" because there is nothing to match, I just call a pig a pig and send them a revised Loan Estimate with the deal structured with LPMI like they asked for.

I have seen "no PMI" adjustable rate mortgages, and the bumped rate there looks 'normal' because it's a normal 30 year fixed rate... but on an ARM. You can of course lower your teaser note rate by taking on an ARM, then bump it back up by taking on LPMI if you wish.

Oh wow again @Chris Mason ! Jeesh, it's a bummer that big banks can still get away with the good 'ol bait-n-switch tactics, even after the crash. :/ And now that you mentioned it, I think I remember on the podcast that the guest said it is some kind of ARM loan. I watched the video you sent and the loan estimate I just got was with actually with HomeReady. On a mortgage for $240k with 3% down, the PMI is $223. Is that normal?

Yup @Chris Mason is spot on.  Its just LPMI.  I always roll my eyes when my clients want to use some lender they found themselves instead of the ones I recommend because they think they found the guy with the best rate, or the lowest fees, and think I dont know what Im talking about. I only do this 20 times a year, so what do I know.  Pretty much the only difference between any of my preferred lenders is available products. Ive got one guy who has some really interesting jumbo products available, and Ive got one guy who has some interesting portfolio products available.  But they can all pretty much do the same things in terms of fees or rates....but I want to use the guys who can close the transaction with no problems.  What good is going to a credit union to shave an eighth of a point of your rate if the transaction has a 20% of falling apart.

I actually turn down working with potential clients if they are insistent on using a bad lender such as Quicken, or a credit union with a bad reputation etc. I also wont sell a property to a buyer using a bad lender.

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@Melissa Searing ,

Chris is spot on about the LPMI. It is a great product for the right person. Your interest rate will be slightly higher, but your payment will be considerably lower depending on your loan amount. The best thing to do is compare the two products, LPMI and monthly PMI and see which one makes sense for you. Also, since LPMI is rolled into the rate, you can fully deduct it on your taxes if you are eligible for that deduction.

Now, I do know some lenders that will do a conventional loan with 5% down and no PMI, but you would have a 2nd mortgage instead. So you would have an 80% 1st mortgage and a 15% second mortgage. I'm not the biggest fan of this for purchases, but it was a very successful product for refinances depending on the client.

Originally posted by @Melissa Searing :

Oh wow again @Chris Mason ! Jeesh, it's a bummer that big banks can still get away with the good 'ol bait-n-switch tactics, even after the crash. :/ And now that you mentioned it, I think I remember on the podcast that the guest said it is some kind of ARM loan. I watched the video you sent and the loan estimate I just got was with actually with HomeReady. On a mortgage for $240k with 3% down, the PMI is $223. Is that normal?

The PMI in your scenario will be determined by your creditworthiness. Google "MGIC rate card" this will outline what your PMI should be provided you know the coverage requirements and your FICO score.

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