{"id":16,"date":"2011-02-20T16:30:40","date_gmt":"2011-02-20T21:30:40","guid":{"rendered":"http:\/\/blog.signalsguru.net\/?p=16"},"modified":"2011-05-11T23:26:32","modified_gmt":"2011-05-12T03:26:32","slug":"private-mortgage-insurance","status":"publish","type":"post","link":"http:\/\/blog.signalsguru.net\/archives\/16","title":{"rendered":"Private Mortgage Insurance"},"content":{"rendered":"

I only put down 10% on my investment property.\u00a0 Generally, when you put down less than 20% on a property (LTV<\/a> of 80%), you either need to purchase Private Mortgage Insurance (PMI<\/a>) or you need to take out a second loan.\u00a0 For investment properties, you might need an LTV of 75% or less.\u00a0 I don’t know the exact rules, and they have probably changed or will change due to the financial crisis.\u00a0 Also PMI does not cover your payments if you can no longer afford them.\u00a0 It insures the bank against your failure to pay, so you will probably never deal with your PMI company.<\/p>\n

My loan originator mentioned that it would be better if put down at least 20%, but based on the numbers (and my lack of money really), I decided I would be better off paying a little extra for PMI.\u00a0 I could have gotten a second mortgage, but I didn’t want to have to deal with a second lender and all the associated paperwork.\u00a0 However, my loan originator failed to mention two important things.\u00a0 The first was that the percentage paid for the PMI is not locked like your rate is locked.\u00a0 I, naturally, assumed both numbers would not change, but I found out the hard way, at settlement, that the PMI had increased by at least .2%.\u00a0 Of course it went up; would you expect it to go any other way?\u00a0 The other thing I was not told was that you can’t get rid of PMI.\u00a0 You have to pay it until the loan is paid off.\u00a0 I believe my loan originator was probably unaware of this.\u00a0 My settlement attorney said something about it.\u00a0 He too, apparently, did not know the law in this particular case.<\/p>\n

The Homeowner’s Protection Act<\/a> lets you cancel PMI once your LTV drops below a certain level.\u00a0 I’ll let you read it yourself; I’m not very familiar with it since it has never applied to me.\u00a0 As I later learned, it only applies when the house is your primary residence.\u00a0 If you’re an investor, you pretty much get thrown to the wolves.<\/p>\n

My specific plan, which I learned about at settlement, required me to pay .9%\u00a0 a year on the original value of the loan<\/em> for the first 10 years.\u00a0 It then dropped to .2% for the last 20 years.\u00a0 Let’s think for a moment about just how bad a deal this is.\u00a0 In a healthy real estate market, you might expect the equity in your house to increase to more than 20% of its value within less than 5 years (assuming an initial LTV of 90%).\u00a0 With PMI, you would be stuck paying thousands in insurance to protect against a default that has no more chance of occurring than someone who initially made a 20% down payment.\u00a0 In fact, even as the risk of default drops to zero, you will still be paying insurance.\u00a0 There’s a simple phrase for that: free money (for them, not you).\u00a0 Even if you did default, the bank would more than recoup any losses.\u00a0 Additionally, since the interest rate pertains to the original value of the loan, if the loan is held for the full 30 years, there will likely come a point in time at which the monthly PMI payments are greater than the interest on the loan itself<\/em>.<\/p>\n

The bottom line is this: Don’t get PMI.<\/strong> Had I paid PMI for the full term of my loan, I would have paid more in PMI than the additional 10% down needed to get rid of it.\u00a0 Take out a second loan instead; you can always pay it off later.\u00a0 If you absolutely have to get PMI, make sure you find out all the details up front and that your rate can’t change at settlement.<\/p>\n","protected":false},"excerpt":{"rendered":"

I only put down 10% on my investment property.\u00a0 Generally, when you put down less than 20% on a property (LTV of 80%), you either need to purchase Private Mortgage Insurance (PMI) or you need to take out a second loan.\u00a0 For investment properties, you might need an LTV of 75% or less.\u00a0 I don’t …<\/p>\n

Private Mortgage Insurance<\/span> Read More »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","footnotes":""},"categories":[3,6],"tags":[],"_links":{"self":[{"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/posts\/16"}],"collection":[{"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/comments?post=16"}],"version-history":[{"count":5,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/posts\/16\/revisions"}],"predecessor-version":[{"id":20,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/posts\/16\/revisions\/20"}],"wp:attachment":[{"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/media?parent=16"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/categories?post=16"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.signalsguru.net\/wp-json\/wp\/v2\/tags?post=16"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}