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FHA 5 year PMI rule

I understand FHA requires PMI for at least 5 years if the down is less than 20%.   What happens if one crosses that 20% threshold within the first year or two of the mortgage?   I am applying for an FHA for a new house and my current house will be on the market in a few weeks.  When my current house sells I am going to apply the equity to the mortgage of the new house which will put me at about 40% paid.   Is there a concession for that situation? 

Thanks!
  • October 15 2012 - Brunswick
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Answers (10)

A lot of factors come into play on whether or not it makes sense.  A side by side comparison of your current mortgage and a new one will allow you to make an educated decision
  • July 04 2014
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What is the typical time of "no-return" in this situation?  I am into my 30 yr FHA for 2.5 yrs.  Is it still worth even considering this assuming my current interest rate is very low.

Thanks
Coy
  • July 04 2014
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Thanks Wayne..you have given me plenty to think about.  I have been pre-approved for the new house without the first selling. 
  • October 16 2012
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Your scenario is complicated and you need an experienced lender. Ask your lender to give you prospects of a 5% down 15% second loan, or 5% down with MI.  I am assuming you have already been pre approved without your current house selling/closing. Because FHA MI remains for 5 yrs and is HIGH cost, it is important that you exhaust all other options.
If your lender is not up to the task, Clay would be an excellent replacement. Read his previous posts over the past yr or so if you want a comfort level that he has the expertise you need.
  • October 16 2012
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Thanks for the advice.  The new house is a foreclosure and the price just dropped 60k making it a very good deal.  I want to go ahead and snag it before someone else does but my current home is not yet ready to go on the market.  (all of this is assuming the inspections turn out okay)   I am actually going to take next week off work to paint and spruce up the current house to get it listed.  So, there is a possibility my current house will sell before the new one closes but the chances are slim.   

The reason I was going with FHA is I don't have loads of cash.  I could do 10% but it would be tough.  My thinking was it was better to do the low down payment and then pay down with the equity in my current house once it sells.    

Suggestions?

Hmm, I am starting to feel like I am doing the legwork for my lender.  :(
  • October 16 2012
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Clay gave good advice...... 5% would be min down with 15% second though 10%  down may be min in your area. (Clay can answer that, too since he is in GA)  Ask Clay thru his profile if second lien lender(s) would have an issue if your current house is not closed simultaneously.  I had that issue on a similiar scenario. A conventional loan with MI would even be a better option than FHA with 1.20-1/25% monthly MI and 1.75% upfront MI..........
It is a little confusing about whether new house is ready and your intent is to close before your current home sells and closes.  If plan is to close on your current home at or before new house is finished, obviously you will be able to do a 60% LTV conventional loan.
  • October 15 2012
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You must continue to pay the Monthly Risk Premium for 60 months even if you prepay the principal balance down to below 80%.  Also, the amount of equity you need after 5 years is 22%-not 20%.  There is no reason to prepay the balance down after you sell your house.  You can invest it for 5 years and then apply more down at that time.

Andy Williams
President
Abacus Regional Mortgage
[deleted by Zillow moderator. Please see our Good Neighbor Policy for posting guidelines]
NMLS # 118317

  • October 15 2012
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I call it a bridge loan because it simply serves to structure the loans in order to bridge to the future sale, then payoff.
  • October 15 2012
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Thanks.  Is a piggyback the same thing as  bridge loan?  My lender told me bridge loans are no longer offered due to market conditions.  
  • October 15 2012
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The drop % is 78% on FHA loans. The only way to avoid paying MI for 5 years is to get a 15 year Fixed term so that the monthly MI stops after the prepayment. It will last 5 years on a 20, 25, or 30 Yr term. You can avoid the upfront MI and 5 years on monthly MI payments by getting a Conforming loan with a piggyback, that way you can payoff the piggyback when you sell and left with a much smaller loan and much smaller payment. It is basically a bridge loan.  
  • October 15 2012
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