Mortgage

Updated on April 25, 2009
K.B. asks from Sacramento, CA
37 answers

I was hoping someone could help me. My husband and I are in the process of buying our first house. I am just getting confused with the loan process. We got prequalified for a FHA loan and we have 20% to put down. We have talk to two lenders and both of them have said that we need to pay PMI (private mortgage insurance). I thought that if you put 20% down you dont have to pay this. Also all the information off the internet has also told me that you dont have to pay this if you have 20% down. They tell me it doesn't matter how much you put down you have to have this. Is there anyone who has bought a house recently experience this?

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So What Happened?

wow thank you everyone for your information. I did find out that with a FHA loan you have to have PMI no mater what. However after 5 years you can be concidered to have it taken off. We also looked into a conventional loan like some of you suggested. Right now with our credit scores a FHA loan gives us the best deal. Thank you all again.

More Answers

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S.J.

answers from San Francisco on

Hi K.,

I would be happy to talk to you and explain FHA, PMI, etc.. to you. My husband and I own our own mortgage brokerage company. We have helped many friends and family sift through the information. At the very least, call us and we can walk you through answers to your questions. We really are happy to help you even if we don't "do" your loan. Our number is ###-###-####. We are located in Terra Linda, San Rafael and Hamilton Field, Novato (our home office). Best, S. Johnson (and husband Tim)

1 mom found this helpful
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L.M.

answers from San Francisco on

Hi Kimberly! My husband is a mortgage broker and he said you need to pay MI (mortgage insurance) no matter how much you put down when you do an FHA loan. A conventional loan does not require mortgage insurance when you put down 20% or more, however, the loan guidelines between conventional an FHA are different which may be the reason your loan officer sent you through the FHA channel. Hope this is helpful.

1 mom found this helpful
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R.C.

answers from San Francisco on

Hi K.,

I'm a licensed loan officer working in Dublin. The rule for FHA lending is always mortgage insurance. If you have 20% down why are you doing FHA? What is your middle credit score? I would recommend talking to a loan officer along with the banks. Someone who can advise you on the process of conventional lending vs FHA. With 20% down you are in the drivers seat and really mortgage insurance is an extra expense that is not a tax deduction. Actually, you are stuck with the payment for the life of the loan. So unless you sale the house or refinance you would have to pay the fee. Good luck and let me know if you have any other questions. Best regards,

R. C

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J.C.

answers from Sacramento on

We had the same kind of loan on our first house. PMI is a requirement for a FHA loan. There are up sides and down sides to this kind of loan. Down sides: PMI, and also there are so many hoops to jump thru. Up sides, because of all those hoops, they make sure you dont get into a bad house. The house we bought was very old and they made sure the seller got it ALL up to code and the seller had to pay for it all. It's more of a pain for the seller. PMI can be removed at a later date, it isn't forever. Look into to see the specifics.

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P.L.

answers from Sacramento on

My husband and I purchased a house in August and dont' have the pmi. We made a huge down payment but if you were told it doesn't matter how much you put down that you still pay pmi he is wrong, we don't pay pmi.

Hope this helps
P.

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S.H.

answers from San Francisco on

Hi K.,

Congratulations on your first home! Its a perfect time to buy!!! Well my husband and I just purchased our first home and it was also through FHA...oh what a loooooong process it was...we wrote about 30 offers before one got accepted. What I think is going to work on your favor is putting down 20 %...thats really good! We only put down 3% and did pay the PMI...so I'm not sure about not having to do so with FHA. FHA has so many strict regulations!!! Good luck and be patient!

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J.N.

answers from San Francisco on

I'm no expert, but from our loan process we learned that FHA loans require PMI no matter how much you put down, for the life of the loan. If you have that much down payment, go with a conventional loan and skip the PMI.

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T.H.

answers from San Francisco on

Hi K.,

AR below is right; it's because it's an FHA. There are a couple differences when dealing an FHA loan. If you don't have a mortgage broker you should look into getting one. They really help explain the whole process in layman (SP?) terms.

Enjoy your new home!

Former escrow officer,
T.

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J.H.

answers from San Francisco on

Hi K.~

My husband and I bought a home a little over a year ago. We put 20% down and did not have to buy mortgage insurance. I don't know if things have changed since, but we were told that as long as we had that 20%, mortgage insurance wasn't necessary.

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C.K.

answers from San Francisco on

Hi Kimberly
You are correct, you do not have to pay PMI when you have 20% down, but that is with conventional financing. With FHA you would still need PMI.

My suggestion is since you have 20% down you get conventional financing, there is not really a benefit for you to have an FHA. (unless there are credit issues that you cannot qualify for conventional financing)

I have been in the mortgage business for the past 9 years and would be happy to review your situation and give any advice. (no obligation)

I have worked with many first time homebuyers and conduct seminars on a regular basis as well. Please contact me if you would like.
Regards
C.

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L.C.

answers from San Francisco on

Hi K.,

I know you have a lot of responses but felt I should give you some info anyway! I have worked in the mortgage business (I have only worked for the banks, not brokers)for the past 14 years. Needless to say I have a lot of knowledge. Here is the skinny - PMI or MI (both mean the same thing)are only requirements on loans that are 80.01% LTV (loan to value) or MORE. They may be trying to sell you PMI because it adds extra insurance on the loan so if you defalt etc. etc. then they have saved themselves a lot of cost in the future. So it is NOT a requirement but a tactic so that they are insuring themselves of any debt failure. Personally I think it is wrong and they try to take advantage of people who do not know loans. So please do not be afraid to let them know that in NO WAY are you going to add PMI/MI to your loan. If they don't like it, go find another lender/bank to help you out. As one person said - you are in the driver seat since you have 20% down. Plus I would look into a CONVENTIONAL loan VS a FHA loan - rates may be better but check on both products. Also - one more thing - double check that you are sure they are trying to add PMI/MI instead of homeowners insurance and taxes to your payment. Some people get that mixed up - taxes and homeowners insurance are required on any home loan no matter what LTV you are financing. They will refer to that as an IMPOUND account. But you have the option to say yes or no to that as well. You can choose to pay that on your own or have the bank do it for you. Let me know if I can help you any further. Congratulations on your soon to be purchase!!!
L.

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M.S.

answers from Sacramento on

Mortgage companies want you to have that insurance because it is free money to them. I would shop around with another lender. My loan people tried to do that to me at the last minute when I was buying my house a few years ago, but I told them I wasn't buying it as I had the 20% down and the reserves necessary. Tell them to show it you in writing, because they might just be trying to pressure you guys. Also if you haven't checked out the Golden 1, you might want to do so because they usually beat the competition.

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J.B.

answers from Sacramento on

K.,
I've bought several houses over the years and never paid PMI, but I didn't go with an FHA loan. Your husband works for the County - you should look into loans thru CalPERS that are offered to CalPERS members (and they also offer them to members of other agency personnel such as County employees).

I've had or have loans with Countrywide, Washington Mutual (now Chase - don't know a thing about Chase), and Wells Fargo in the past and honestly have not had a problem or issue with any of these companies. Others may have had different experiences, but I've been fine with all of them.

Congratulations on your first house and best wishes.

J.

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L.C.

answers from San Francisco on

Hi K. B.~
Congratulations on the purchase of your new home. I asked our in-house lender (Intero Mortgage)about your question. FHA is usually for people with "slow" credit (late payments, collections). If you have 20% with good credit, you should go a Conventional Loan. Also, there may be a program offered through CalPERS that your husband would benefit from. Good Luck to you both.
Let me know if you have any other questions.
Lucy B. C.
Intero Real Estate Services

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N.M.

answers from Port St. Lucie on

Back when my husband and I got an FHA loan in MA, PMI was required regardless of the down payment. I believe it's because you are getting a government insured loan. I'm not expert, but if you specifically research FHA loans and PMI (versus just PMI), you might get more details. Also, if you have a broker ask him/her. They are usually good at explaining this kind of stuff to the lay person.

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P.W.

answers from San Francisco on

We are currently looking for a house and intend to put down 20% -- from what I've heard you are correct - no PMI if you put down 20%.

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M.W.

answers from San Francisco on

My husband are in the process right now of selling our home and we just purchased our 4th home, one of our homes was an investment property.Yesterday we locked in the interest rate at 4.45% and we have always put down 20%+ down to avoid avoid PMI. I don't know why lenders are telling you otherwise. My experience is has always been 20% avoids PMI. Call a couple other lenders and also talk to your realtor...call a couple other Real Estate Co. just toask them. Good luck!! Happy first home buying!!!

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C.F.

answers from Modesto on

Hi,
My daughter just bought her first house, and we used Kristina Gunnin with All American Mortgage. She is very knowledgeable. Here is her cell phone number: ###-###-####.
Cynthia

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J.B.

answers from San Francisco on

Hi K.,

Congratulations! We are in the same boat as you.

It is my understanding that if you have 20% down then it is better to get a regular loan specifically to avoid the PMI. FHA loans are best when you don't have 20% down, because then you can get a house with only 3% down.

Good luck!

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K.V.

answers from San Francisco on

hmmm... I had 20 percent in November and was not required to pay PMI, but the banks might be getting tighter with their rules because of all the foreclosures. I found my lender on lending tree, just make sure if you choose an out of state lender that you choose your own local title company (AT THE BEGINNING OF THE PROCESS!) I didn't do this and was quite surprised when the one they chose was like 500 miles away.

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G.L.

answers from San Francisco on

K.,

We are in the same process and since you are putting 20% down you DO NOT have to pay mortgage insurance. Further more you won't get an FHA loan. You'd only get one if you have less than 20%. If you are in the San Jose area we have a great realtor and loan agent who can answer any more questions you have! Good luck and get with people who will give you the right answers!! :)

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J.C.

answers from San Francisco on

Hi, K.!

My name is J. Cisper, mother to a 2 year old daughter. My husband works at Verizon in Cupertino and I am a combo stay at home, entrepreneur, student & care taker to aging parents.

I read your post and felt compelled to share a resource. Are open to calling for a third opinion? The rules of mortgage lending have changed quite a bit in light of recent issues with foreclosures.

I highly recommend that you call Alan Eidinger of Silicon Valley Mortgage at ###-###-####.

Or if you'd like I can have him call you to follow up on your request. If yes, please send me an email direct to [email protected]____.com with your contact details. Or you can call me at ###-###-####.

I hope to help you resolve your questions!

Regards,
J. Cisper

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M.W.

answers from San Francisco on

because of the type of loan you are using (FHA /GOVERNMENT) they require PMI. If you go with a conventional/traditional loan product the fact that you are putting 20% down and your total loan amount is 80% of the purchase price you are NOT required.

Are you choosing an FHA product for a reason?
You may want to call someone that can actually explain this to you as it doesn't sound like the lenders you are talking to are being specific enough or explaining in a way that you are able to understand.

I work for Wells Fargo Home Mortgage as a loan processor and you can certainly call me and I can have any one of the 5 loan officers I work with explain the process to you.

Are you already in process with your loan? Have you given the bank any money to start the appraisal process?

Feel free to call me ###-###-####

M.
Wells Fargo Home Mortgage

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J.K.

answers from Fresno on

I think kit is newly required bwcause of all the bailouts and economic esan forclosures.Itcan add a signifcant amount to your payment.

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J.M.

answers from Sacramento on

I think that is the downside of a FHA loan, they require it no matter the down payment. Other lenders don't require it if you have the 20% or if you have a second mortgage loan that makes the balance... say if you only had 10% down, you financed 80% on the primary loan and another 10% on a second loan, that's how we got around it... but the lenders weren't honest with us and we wound up with a balloon at 15 yrs on the secondary... so we refinanced after 3 years, but it turned out to be one of the best things we ever did! But the downside of the private mortgage companies vs FHA is that the rates might be higher and thus, your payment, too. So look at what your payment from FHA with the PMI (and don't forget to include your monthly amount to save for prop taxes!!) vs. a payment (and including prop taxes) without PMI from someone else. A one percent difference in rates might be more than the difference you'd pay if you had to pay PMI. Good luck and ask questions and make sure you understand EVERYTHING before you sign.

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E.L.

answers from San Francisco on

PMI was made tax deductible only recently, and there is no guarantee that it will be so forever. It was passed as part of all the measures to help homeowners.

I wouldn't count on it being tax deductible forever, and determine what you can afford on its deductibility.

***
From what I know, if you have 20% equity in your home (down payment), you do not have to pay PMI. When we refinanced our home recently, we had to pay a "charge off" amount to ensure we had 20% equity, since the value of our home had decreased, and hence our equity was no longer 20%. Thankfully, it was under $2k!

There have been a lot of articles about predatory lenders and tightening standards. I would shop around and see if you get the same story from other lenders. This doesn't sound right.

You also have to be mindful that 20% equity is sometimes not based on the purchase price, but the evaluation of the home. If the bank deems the home worth more or less even though you are only borrowing x amount, it can change the % equity you have. Also, I don't know if there are special conditions on FHA loans.

***
I should clarify the whole equity issue.

Let's say the house you want to buy is $300k. You have $60k to put down, that's 20%. You need to borrow $240k to purchase the home. The bank looks at the house and goes...nah, the house is not worth that much. They think it's actually worth $250k. You still need to borrow $240k to buy the house. It doesn't matter that you are paying $60k to buy the house. That's not "equity" even though it sounds like it should be. You still need to borrow $240k for a $250k home. Your LTV (loan to value) ratio is too high, no matter how much money you paid out of pocket. According to the LTV, you only have 4% equity, even though in your mind, you've paid 20%. It's the amount that you borrowed against the value of the home that dictates the 20% equity to avoid PMI.

I hope that helps.

***
This is why people are "underwater". They borrowed, say $500k, to purchase their home. All fine and dandy until the market tanks. The bank and market now tells them that their home is only worth $300k. Even if the person sells their home for $300k, they still owe the bank another $200k to pay back the loan.

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K.M.

answers from Bakersfield on

Hi K.!

My husband and I did not have the 20% down and had to pay PMI, but as soon as we were able to come up with the money, the PMI went away.
I would strongly suggest joining a local credit union and using them. You are a member, not just a customer, and they seem to work with people better than the big banks like Wells and BofA. Good luck and congrats!

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S.H.

answers from San Francisco on

Congrats! It seems that the mortgage broker should be able to fully educate you and answer all your question and/or explain the questions. We own two houses and initially went through a few brokers - because they were horrible. We finally found an extremely successful, personable and very educated broker. He was there for us 24/7 even after the purchase was final. He educated us every step of the way. I know everyone likes to put referrals down, but in the event you need a GREAT broker:
Shawn Moore - Thousand Oaks Financial (Albany, CA)[email protected]____.com ###-###-#### ext 105

Good luck!

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S.E.

answers from San Francisco on

We were told that it has to do with the amount being financed. Big $$ means they want PMI.

s

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J.P.

answers from San Francisco on

K., we're buying a home too, and everything that I've been told says that indeed, if you put 20% down, you do NOT have to pay PMI. Do you have a mortgage broker who can work as the middleman between you and the lenders? This is really a good idea so you don't find yourself at the mercy of an unscrupulous lender.

J.

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A.R.

answers from San Francisco on

Hi Kimberely
I think the difference here is that it's an FHA loan... and as I understand it, regardless of the 20% down , ALL FHA loans require it that is why it's easier to qualify for an fha as oppose to a traditional loan..
now with that said, conventional loans allow you to get rid of the pmi once you reach 78% of the loan value, whereas with FHA you pay PMI for the life of the loan...
However, I do think PMI is tax deductible..
as with everything, I would research the net and type in FHA loan and PMI... I think you will find a wealth of info..

I wish you the best!! and good luck with your new home!!

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D.C.

answers from San Francisco on

Dear K.,

This is a no-brainer if you have someone you can trust. Do yourself a favor and call Michelle Morse Reen, a mortgage broker that goes above and beyond, (and is a mother of two, as well.) She has almost 20 years of experience and knows all the ins and outs, and can explain them to you. ###-###-####.

I also can recommend a very ethical, helpful and knowledgeable real estate agent:
Kris Myers at Intero . Mobile ###-###-####

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L.S.

answers from San Francisco on

Everything I have heard about this is exactly what you have researched. In fact, my sister had to pay for PMI because she did not have the 20% and then the mortage co. made it difficult for her to finally stop paying it when she had enough paid off. I would be very careful right now with any co. that is not explaining their reasons for this. Print out several reputable sources that state the 20% guideline, show them this and see what they say. It is possible that there are other factors involved, but with all the weird stuff that can go on with mortgages, I would be very cautious.

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S.F.

answers from Chico on

You do NOT need PMI if you have 20% down.

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S.B.

answers from San Francisco on

Hi Kimberely, first of all congratulations on buying your first home. I know it is exciting, but stressfull at the same time. It has been many years since we bought our home, but I thought PMI was something that was optional. I would research it on different websites and see what you come up with. It is important to know everything before signing any papers. Good Luck

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M.E.

answers from San Francisco on

HI Kimberly-
I'm not sure if anyone suggested this already because I didn't read all the responses..but from wife Dep's wife to another....if you guys have 20% to put down..why not try to qualify for a non-FHA loan and see what other options you have if it's the FHA loan that makes you need the PMI. Seems like you've done everything right and have a good chunk of change to put down....explore ALL your options as this is one of the most important and lon lasting decisions you guys will make. SOunds like you waited this long, so hey, get it just the way you want it. As a first time home buyer with cash...if your credit is good, you should be sitting pretty!

Good luck!!!and congrats about your new baby girl!!!
M.

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K.H.

answers from San Francisco on

Hi K.. :)

As a Realtor and a mortgage loan agent, I am going to answer your question directly: (My apologies for the length of explanation. No way to make it brief and still be clear.)

1) An FHA loan has a minimum of 3.5% down. The buyer/s are responsible for the down payment, establishment of the required impound account, (where your property taxes and homeowner's insurance is collected on a monthly basis and your lender pays them on your behalf when they come due), and interim interest (the interest on the loan between the time you close escrow and the 1st of the following month). The rest of the closing costs can be a credit from the seller, if your real estate agent negotiates it that way.
Because it is an FHA -insured- loan (so one does not confuse it with an FHA loan - FHA insures, not lends), and less than 20% is put down, mortgage insurance is required. An up front premimum (can be added to loan amount or paid out of pocket, or as a credit from the seller) and an annual mortgage premium that is paid on a monthly basis.
The UFMIP (Up Front Mortgage Insurance Premium) can be credited back to you on a pro rata basis during the first 5 yrs of ownership if you (a) sell your home so you no longer have the loan or (b) refinance out of the FHA loan.
The annual premium / monthly payment will go away once the value of your home increases to equal or better of 78% of the market value. (As you will then have 22% equity - similar to the 20% down idea...Less risk - no mortgage insurance needed.)

2) If you have a 20% down payment and brokers are suggesting you get an FHA loan, it could be (a) the brokers have lost their minds (b) there's a misunderstanding (c) the 20% you have is being calculated differently by you vs. them, see (b) or (c) and, I hate to say this - they're crooks; unlikely 2 at the same time...

When a borrower's first mortgage is over 80% of the purchase price, mortgage insurance is required. There are even loan programs currently available in Santa Clara County for 90% loans, with lender paid mortgage insurance, and ones with third party mortgage insurance. So, having an FHA loan with the kind of reported down payment you have baffles me.

No matter where you live in CA, I can answer questions for you. (And, other moms!) ###-###-####
K.

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