Thu, 31 Jan 2013, 10:55pm PST
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save 20% down... avoid PMI, get the best rates...
I agree that the FHA fees are crazy, but PMI isn't so bad. I considered several options, and i ended up putting only 10% down -- some mornings I wish I had just put 5% down. The extra cash on hand keeps me more flexible -- and if I want to I can just pay the difference and eliminate the PMI at any time. So if I need the cash (for renovations, for example) I have it, but if not I can just apply that money towards the loan balance.
I was still able to get a good rate, and even with the PMI (I think I'm paying about 0.62% for the PM) I'm still well under 4% -- cheap money.
Fri, 1 Feb 2013, 12:18pm PST
I think there is a 5 year handcuff. The new FHA changes propose a forever handcuff (as long as you have any loan balance).
0.6% is not horrible, it is set to go to 0.7%. for the 5% down payment, it will go to 1.3%. That is simply awful. It is spectaculary awful if it is handcuffed forever.
I believe they are talking about a non-FHA loan with PMI. You are correct though that under the old FHA rules (till June I think) you can only drop the 1.3 PMI after 5 years AND 78% LTV. Which means you have to put ~10% down or make additional payments over those first 5 years to even drop it at that point.
The new FHA rules are ridiculous. Really only makes sense if your credit is shitty and you make enough to pay it off super fast (like 2x price to salary).
Fri, 1 Feb 2013, 1:02pm PST
IF you pay off the other 10% ($10,000) and get rid of PMI, you will save:
1. 3.5% of 10,000 = $350 a year.
2. 0.6%*90000 = $540 a year
total savings $890 a year, on a $10,000 outlay, is a spectacular 8.9% return, for a guaranteed fixed return today.
Yeah, that is a consideration. The 3.5% of $10k is a savings but it goes towards principal pay down (and thus early payoff), and not money in your pocket today. Of course it still matters.
The second piece is savings off the monthly bill..but that portion of the 8.9% return evaporates after the point where you would have paid the balance down to 80% anyway (in my case 5 years). So while you do get that spectacular return today, it's only for 5 years.
If the house were in pretty good shape, and I had enough to fully fund all tax sheltered retirement accounts, I might pay it down to 80% LTV ratio, but it needs work. We are likely going to put some money into a kitchen renovation and bathroom renovation before we move in....so I need to keep the extra money freed up.
The reasoning goes like this (I think it's sane and correct):
I can pay down the balance to 80% to get rid of the PMI, but then I'd have to take out a loan (likely a HELOC) to do the renovation. Current rates are probably at least 4% and variable, which is more than my fixed rate + PMI combined. The other option is to use the money to do the renovation, and then have a new appraisal done to establish the 80% LTV ratio (I know, I may still have to throw some money at the loan to get it down). In that case the PMI goes away, and all of my house expenses are financed with a fixed (and lower) interest rate. (Also the interest is tax deductible. Is HELOC interest tax deductible?)
In the end it probably doesn't matter anyway. I don't exactly have money coming out of my ears, but the total housing cost is pretty low (
Fri, 1 Feb 2013, 4:45pm PST
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There's a new loan program out there. 5% down at 4% interest rate with no PMI, no points, no costs. Loan value is up to $625k. This program is only for primary residence.
If I don't have the above option, I'd go with 5% or 10% down payment conventional financing and pay PMI. FHA is not the way to go.