Purchasing a home, mortgage question within! (1 Viewer)

[shake zula]

Which is the better option:

OPTION 1: 5% down w/ 5.375% interest rate with no mortgage insurance. monthly payment is $1880

or

OPTION 2: 3.5% down w/ 4.250% interest rate with mortgage insurance of 314 per month. monthly payment is $2080

or

Option 3: 3% down w/ 5.5% interest rate, no mortgage insurance, monthly payment of [SIZE=11pt]$1,936.58[/SIZE]

Even with a higher interest rate it seems to me that option one is the better deal. What am I not seeing?

 

[17seconds]

When would you stop paying PMI on option 2?

 

[shake zula]

When would you stop paying PMI on option 2?

Never, unless I refinance.

 

[fruity pebbles]

When would you stop paying PMI on option 2?

Never, unless I refinance.

You sure about that? Most drop off after you're down to 78-80% of the loan.

 

[shake zula]

There is now an option three.

 

[ichris]

I thought loans with less than 20% down require PMI?

 

[shake zula]

When would you stop paying PMI on option 2?

Never, unless I refinance.

You sure about that? Most drop off after you're down to 78-80% of the loan.

Right, but it won't drop automatically with the proposed lender. I'd have to refinance into a loan with sufficient equity.

 

[RUSF18]

I'd choose option 4: Keep renting.

 

[Juxtatarot]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

 

[shake zula]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

PMI won't stop unless I refinance. The loan with no MI is through M&T, and it's no MI for sure - nothing tacked onto the loan amount. Purchase price is 289k.

 

[fruity pebbles]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

 

[shake zula]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

 

[fantasycurse42]

Why not put 20% down? Have you not saved 20%?

If that is the case, do you not have any rainy day money? Just something to think about before buying...

 

[17seconds]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

I would have assumed that but he's getting a 5% loan with no PMI so I don't know what the hell is going on

 

[shake zula]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

 

[RUSF18]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

If you have enough cash left over after your purchase to stock away for when things break/need to be replaced, go ahead. Or better yet, put that cash down and lower your payment significantly.

You're talking about only putting between $10K and $15K down on a $300K property. That's miniscule.

 

[shake zula]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

I would have assumed that but he's getting a 5% loan with no PMI so I don't know what the hell is going on

Why not put 20% down? Have you not saved 20%?

If that is the case, do you not have any rainy day money? Just something to think about before buying...

I don't have 20%. If I put down 3-5% I am still left with a good amount in savings and I don't have to touch our 401ks.

 

[fantasycurse42]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

If you have enough cash left over after your purchase to stock away for when things break/need to be replaced, go ahead. Or better yet, put that cash down and lower your payment significantly.

You're talking about only putting between $10K and $15K down on a $300K property. That's miniscule.

Good ol' 2005

What could go wrong?

 

[fruity pebbles]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

 

[shake zula]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

If you have enough cash left over after your purchase to stock away for when things break/need to be replaced, go ahead. Or better yet, put that cash down and lower your payment significantly.

You're talking about only putting between $10K and $15K down on a $300K property. That's miniscule.

I will have money to put away and I will be left with a decent chunk in savings. 10k is what I am out of pocket, closing costs taken care of by seller and lending company.

 

[17seconds]

Wait.. they must be building the insurance into the rate. Because you are saying no insurance with low money down but the rates are kind of high.

 

[fruity pebbles]

If you plan on being here awhile and can get rid of the PMI by paying down in a few years, option 2 is the best option

 

[Juxtatarot]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

I would have assumed that but he's getting a 5% loan with no PMI so I don't know what the hell is going on

I think the lender is assuming the risk of no PMI but passing it along as a higher rate.

 

[shake zula]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

The PMI option is an FHA loan. I just read the link and I agree but I have no clue how long it'll take me to build up that much equity. This is a starter home, not the home I plan on living in for the next 40 years. I anticipate that it'll be a solid rental after we move on.

 

[shake zula]

Wait.. they must be building the insurance into the rate. Because you are saying no insurance with low money down but the rates are kind of high.

The loan is with no PMI - not tacked on as a separate loan either.

 

[17seconds]

Run the numbers based on how long you think you'll keep the house and when PMI drops off. Don't forget the difference in interest tax writeoff which is prob a $1K/yr better with option 2.

I'd guess option 1 is better if you aren't going to keep the house for more than 10 years, option 2 better if you plan to have it forever. Lock in the lowest rate and PMI will eventually drop off.

BTW, the lower money down on option 2 covers the PMI for more than a year.

 

[The Commish]

Wait.. they must be building the insurance into the rate. Because you are saying no insurance with low money down but the rates are kind of high.

This is correct. PMI is in the rate. The benefit to this is you get to claim the interest. You'll get more of a write off with option 1 or 3, but what's puzzling to me is the more down payment that corresponds to higher interest rate. If I had to pick from those three, I'd pick #3 if I wasn't staying in the house forever. If I'm staying well beyond 5 = 8 years, #2 is the way to go.

 

[RUSF18]

Also don't see why you would be paying a lower interest rate in option 3 despite putting less money down.

 

[fruity pebbles]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

The PMI option is an FHA loan. I just read the link and I agree but I have no clue how long it'll take me to build up that much equity. This is a starter home, not the home I plan on living in for the next 40 years. I anticipate that it'll be a solid rental after we move on.

FHA is pretty cut and dry. PMI drops off after you have 78% equity and a minimum of 60 PMI payments. So even if you put extra down, you'll have to pay it for 5 years. If you plan on keeping the house, thats the way to go. If you think you'd sell in 10 years or less, option 1.

 

[The Commish]

When would you stop paying PMI on option 2?

Never, unless I refinance.

I'm pretty sure PMI stops when you get down to 78% LTV. Without doing the math, the second option would be better if you keep the loan for all 30 years. Purchase price is $346Kish, right?

I would have assumed that but he's getting a 5% loan with no PMI so I don't know what the hell is going on

I think the lender is assuming the risk of no PMI but passing it along as a higher rate.

This isn't allowed anymore...SOMEONE has to pay the PMI. They are passing it along to you in the %. At least this was the case as of this past June...might have changed again by now.

 

[shake zula]

Wait.. they must be building the insurance into the rate. Because you are saying no insurance with low money down but the rates are kind of high.

This is correct. PMI is in the rate. The benefit to this is you get to claim the interest. You'll get more of a write off with option 1 or 3, but what's puzzling to me is the more down payment that corresponds to higher interest rate. If I had to pick from those three, I'd pick #3.

Just fixed option 3, it's 5.5% not 5%

BTW Thank you all for the advice!

 

[VA703]

option 1

 

[shake zula]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

The PMI option is an FHA loan. I just read the link and I agree but I have no clue how long it'll take me to build up that much equity. This is a starter home, not the home I plan on living in for the next 40 years. I anticipate that it'll be a solid rental after we move on.

FHA is pretty cut and dry. PMI drops off after you have 78% equity and a minimum of 60 PMI payments. So even if you put extra down, you'll have to pay it for 5 years. If you plan on keeping the house, thats the way to go.

That's 18k in PMI payments. The question seems to be if the 1.0/1.5 difference in interest rate of the next 10 years equals 18k. It would seem that over the course of 30 years that 1.0/1.5 difference in interest would certainly eclipse 18k.

 

[The Commish]

Wait.. they must be building the insurance into the rate. Because you are saying no insurance with low money down but the rates are kind of high.

This is correct. PMI is in the rate. The benefit to this is you get to claim the interest. You'll get more of a write off with option 1 or 3, but what's puzzling to me is the more down payment that corresponds to higher interest rate. If I had to pick from those three, I'd pick #3.

Just fixed option 3, it's 5.5% not 5%

BTW Thank you all for the advice!

Then I'd pick between #1 an #2. If you're going to be there long term, go with #2. If this is a 5 years and move thing, go with #1.

 

[bushdocda]

How is there no PMI with 1?

Sorry if this has been asked and answered and I failed to read goodly.

 

[Quez]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

 

[fruity pebbles]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

The PMI option is an FHA loan. I just read the link and I agree but I have no clue how long it'll take me to build up that much equity. This is a starter home, not the home I plan on living in for the next 40 years. I anticipate that it'll be a solid rental after we move on.

FHA is pretty cut and dry. PMI drops off after you have 78% equity and a minimum of 60 PMI payments. So even if you put extra down, you'll have to pay it for 5 years. If you plan on keeping the house, thats the way to go.

That's 18k in PMI payments. The question seems to be if the 1.0/1.5 difference in interest rate of the next 10 years equals 18k. It would seem that over the course of 30 years that 1.0/1.5 difference in interest would certainly eclipse 18k.

Are the closing costs of the loans similar, that has to be factored in as well. Down payment wise you are saving 5 grand upfront with loan 2 over loan 1.

 

[shake zula]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

 

[Zegras11]

When would you stop paying PMI on option 2?

Never, unless I refinance.

You sure about that? Most drop off after you're down to 78-80% of the loan.

FHA is for life of loan now.

 

[shake zula]

think you need to read the homeowners protection act. what they are doing is illegal.

http://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf

Hmmmm interesting. It'll still take me some time to build sufficient equity. I will be throwing away 314 per month for a while.

They can't lifetime PMI. You can pay the loan down early for some loans to get down to 80%. Other loans (FHA) you have to pay for a minimum number of years. It really depends on how long you plan to live here and how long it would take for you to get down to 80%.

The PMI option is an FHA loan. I just read the link and I agree but I have no clue how long it'll take me to build up that much equity. This is a starter home, not the home I plan on living in for the next 40 years. I anticipate that it'll be a solid rental after we move on.

FHA is pretty cut and dry. PMI drops off after you have 78% equity and a minimum of 60 PMI payments. So even if you put extra down, you'll have to pay it for 5 years. If you plan on keeping the house, thats the way to go.

That's 18k in PMI payments. The question seems to be if the 1.0/1.5 difference in interest rate of the next 10 years equals 18k. It would seem that over the course of 30 years that 1.0/1.5 difference in interest would certainly eclipse 18k.

Are the closing costs of the loans similar, that has to be factored in as well. Down payment wise you are saving 5 grand upfront with loan 2 over loan 1.

Good question. I anticipate similar closing cost but I am also working on trying to get option 1 to kick in on the closing cost. Option 2 includes a lender credit of 3k.

 

[bushdocda]

How is there no PMI with 1?

Sorry if this has been asked and answered and I failed to read goodly.

 

[shake zula]

How is there no PMI with 1?

Sorry if this has been asked and answered and I failed to read goodly.

It's a proprietary loan through M&T. Some within the thread are saying it's tacked on through the slight interest rate increase.

 

[fruity pebbles]

When would you stop paying PMI on option 2?

Never, unless I refinance.

You sure about that? Most drop off after you're down to 78-80% of the loan.

FHA is for life of loan now.

Really? Is that new? If true, id definitely go with option 1.

 

[Gawain]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

--Bah, was thinking about paying bi-weekly, which is also a good plan.

 

[jhexel]

Option 1 and Option 3 have "Lender Paid" Mortgage Insurance...the borrower off-sets the removal of MI on their payments with a higher interest rate. Option 2 is a FHA loan where MIP would not "fall off" after you get to 78% LTV as any new FHA loan (with 3.5% down) has MIP for the loan term (unless refinanced into a Conventional loan to remove MIP).

 

[the moops]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

How so? Is it because of the daily interest that accrues?

I think he is talking about making 1/2 payments every 2 weeks which results in 26 half payments which is one extra months payments a year. or something like that

 

[matuski]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

$200 more per month is just the beginning. Home ownership comes with home maintenance & repair.

 

[shake zula]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

$200 more per month is just the beginning. Home ownership comes with home maintenance & repair.

True and it comes with added benefits too. I'm the kind of person who would rather pay 200 to fix the sink than call the landlord and wait while he bids it out to the cheapest guy.

 

[James Daulton]

Ask about breaking your mortgage payment down into 2 monthly payments. It can save you 5-7 years on a 30year.

Definitely the way to go, it's crazy how many years you can shave off on a 30yr note. The only downside is that you lose most of the mental advantage of the 3 paycheck months in a year.

 

[RUSF18]

I'd choose option 4: Keep renting.

I can buy for 200 more per month and not live in a closet.

$200 more per month is just the beginning. Home ownership comes with home maintenance & repair.

True and it comes with added benefits too. I'm the kind of person who would rather pay 200 to fix the sink than call the landlord and wait while he bids it out to the cheapest guy.

So the added benefit is...less money in your pocket?

Who cares if a landlord fixes something cheaply? You don't own it, you just want it functional. And if you can't find an apartment where work gets done in a reasonable time frame, I'll amend my choice to "keep renting somewhere else".