Anonymous
Anonymous asked in Business & FinanceRenting & Real Estate · 1 decade ago

Who else thinks that having to put down 20% to avoid PMI is too high?

I'm financing a home for $209,000 and am only able to put 10% down ($20,900) and that's because I'm selling my home and making a profit off of it. How on earth can people really save $40,000 + to purchase homes??? Maybe I could if I made $100,000 a year lol but like most people, I don't.

Update:

I have good credit and buying this single family home will actually be cheaper than what I'm paying for my townhouse with condo fee and land lease, so it's not like I'm digging myself in a hole here lol

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  • Seano
    Lv 4
    1 decade ago
    Favorite Answer

    You have to understand where the lender is coming from, the PMI is insurance against you defaulting on the loan. They have statistics that will show that lower your down payment the greater the chance you will default on the loan. The 20% guarantees if they do take the house back they will not lose money. Remember you only have to pay PMI until your loan to value reaches 80%. If the house appreciates you can have it appraised and the lender will remove PMI requirement.

    You bite the bullet when you are young and buying a first house, and when it appreciates and you buy your next house you apply the profits to the down-payment and avoid PMI.

    For a $209,000 home you can look at FHA loans which have a PMI like program its a little different. Also your lender should be able to offer a 80-10-10 loan that could save you the PMI. If you don't have good credit then you are really stuck with the PMI. Bottom line lenders don't like taking chances on getting paid.

  • 1 decade ago

    Recent IRS changes may allow you to write off the PMI on the house so the need for a second or a large down payment may no longer be required. I believe, but do not take this as gospel, is if your income is less then $100,000 a year the PMI is tax deductible now. But double check with a CPA in your area.

    You can also get a second to cover the 10% you don't have as well. The rates on seconds are higher though.

    There are also first time homebuyer programs that help people with down payments and closing costs in some cases, depending where you live and income level. If the loan officer told you that you must have 20% down find another lender. They should have explained your options. Check with a couple lenders to see what's available. Ask people who own homes who they used and if they liked and trusted them. More important, does that loan officer still keep in contact with them.

    I hope this helps some. Email me if you have any further questions.

    CA Lender

    Source(s): 23 years mortgage experience.
  • 1 decade ago

    In the old days you would not have been able to get a 90% loan at all. Which is worse, PMI or no loan at all? Keep in mind the whole idea of collateral is to protect the lender in case of foreclosure and liquidation. Just a few years ago the idea of a home losing value seemed silly to many people. Now we all know that homes can and do lose value. Looks like you will either have to pay PMI, buy a less expensive home, or keep saving.

  • 4 years ago

    Actually, if "this" generation was putting down 20%, a lot of the current credit crisis would not exist. The US economy would not be in the mess it is now. Today, with single digit interest rates (ask your parents about 15%+ interest rates), the bank have been over extending credit to people who do not have the means to handle a mortgage, with such little down Back in the Say Saving...You can save a lot of money, by investing it. There has never been 15% interest rates paid in bank accounts ever. With a conservative investments you can easily get around 5%. Saving is the easy part.....Send less then you earn. Our society is not built around spending that is more a marketing and advertising hit. Look carefully, today governments are warning you to SAVE for the future. Your last statement just makes no sense. If you force people to save for there downpayments how would that eliminate the middle class ? The middle class is dictated by there earnings, not their spending. The economy, would take a bit of a hit as people saved some money, but in the long run the savings on interest payments would give these people much more spending $$ in the future.

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  • 1 decade ago

    Here is a suggestion:

    Apply for an 80% loan. Work with a lender or a broker who will simultaneously lend the 10% added on a home equity loan.

    The alternative would be to pay down a 90% loan when you liquidate your present residence, and then request elimination of PMI.

    I like the first choice best. It should not be a problem to find, either. Mortgage brokers can be creative when they are hungry.

  • 1 decade ago

    Talk to a lender that wil do a 80/10/10 loan

    80% first

    10% down

    10% second.

    This will eliminate the PMI and will be less in the increase in interest rates than actually paying the PMI.

  • godged
    Lv 7
    1 decade ago

    PMI and title insurance are great for those who sell them. What choice do you have? If you want a loan for less than 20% down, you generally need PMI. If you want to buy a house, you have to have title insurance. Period.

    That may be a way for you to make a $100,000 a year, get into the PMI or title insurance business. =)

    Source(s): Oregon Realtor
  • Anonymous
    1 decade ago

    Let's say I sell you a brand new car, and require you to buy insurance on the car. How should we decide on the price of the insurance? Based on the value of the car? Or just pluck a number out of the air that YOU think is "reasonable"? The downpayment requirement is a way to filter risk, if you cannot afford to put 20% down, then by definition you are a MUCH higher risk for defaulting on your loan.

    Perhaps you are buying too much house.

    "Most" people make $40-50,000 a year (that's the overall average), and could save 25% of it if they tried. So in four years they would have a $40,000 CASH deposit. Having a cash deposit would give them a better rate, and avoid the PMI.

    But then "most" people, when they decide they want something, want it NOW! Now, now, now!

    That's why most people are up to their eyeballs in debt!

  • 1 decade ago

    Well, 20% is required by most banks to ensure they'll get paid. People save money all the time to purchase homes, and it often makes sense to have the 20% down in order to reduce the payments, and get the best rates on a mortgage.

    RE: Saving, its all a matter of priority, I guess. People also can borrow from their retirement savings account in order to purchase a house, which is part of where my wife and I would draw alot of the down from.

    Buy a duplex and rent the other half... thats the best way to do it :)

  • 1 decade ago

    Unfortunately, that is the rule for most lending agencies. I do agree that it is silly, but that is how lenders protect themselves and make money. Occasionally, you will find lenders who do not charge PMI, but it depends a lot on your credit rating.

    And please do remember to renegotiate once you have attained over 20% equity.

    Good Luck and Congrats.

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