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How is PMI calculated?

Hello,
I'm not quite at 20% just yet, but have enough that I'd be able to put a sizeable down payment on a home and handle the monthly payments.  I've been looking at homes where I could afford 20% only to realize some others are well within my reach - if not for the DP.  I'm toying with the idea of using a FHA loan and paying the blasted MPI for 5 years, but I'm trying to understand exactly how it's computed.  I've heard everything from it's linked to your credit to it being 1.15% of the MORTGAGE amount, (not difference between 80% equity).  More intriguing, I've also heard that it's calculated differently each month depending on the mortgage amount.

Having never owned a home before, can anyone advise on the PMI under a FHA loan?
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May 10 2012 - Baltimore
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Answers (7)

Based on your information you should only be looking at three options:

1.  First trust of 80% with 5% second
2   First trust of 75% with 10% second
3.  85% loan with Single Premium MI-The MI can be paid by you, the seller or the lender(through premium pricing)

The 1st and 2nd option need to be looked at on a to see which combination provides the lower payment.  There are different price adjustments that need to be weighed on those options.  Depending on the pricing of interest rates on a given day one may be better than the other.

2nd Trusts are slowly coming back into the market.  Like Brian said FHA is not the route you want to go for a 5% down loan or greater when you have excellent credit.

Hope this helps.

John
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May 12 2012
You may want to talk to a mortgage lender face-to-face and learn about the different options to decide what may be best for you and your particular situation.
There could be many different possibilities depending on where you are looking and what you are looking for, and sitting down with a lender who will take the time to learn about you and counsel you about the options could really be helpful, especially since this will be your first home.
Please let me know if you'd like a few recommendations!
Good luck!
Sincerely,
Marney Kirk
Keller Williams Excellence Realty
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May 10 2012
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What!?!  You can still do piggyback loans?  No, we didn't discuss that at all and our lender definitely never mentioned that option.  He suggested we put down 3.5% and go FHA so we could have money in the bank for a wedding, etc.  Even "nice" enough to credit the upfront FHA fee.  When I insisted on the 20%, he really cooled off.

Hypothetically, we're looking around $300k with about $42k as a down payment.  Is it still possible these days to get a 2nd mortgage to cover the remaining $18k in place of PMI?  I obviously have no loyalty to our current lender, but even if they don't offer that option, how would we find out which banks would in our area (Balto, MD)?
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May 10 2012
 Did you tell the folks you talked to you were putting down 15% and have excellent credit? There are several ways to handle PMI or you can use 5% second mortgage.   
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May 10 2012
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This is SOOOO helpful!  I've been under the impression (thanks mortgage lender!) that FHA would be our route with less than 20%.  We have very steady jobs, excellent credit, and are not stuck having to sell another property, etc.  So not having 20%, (about 15% of the target price we're comfortable with), it sounds like we could still "be stuck" with mortgage insurance, but not at the ridiculous FHA multiplier/upfront fees.

I just used Zillow's mortgage comparison and it ballparks PMI. Is there a good resource for shopping/comparing those rates?  We'd definitely be in a position to get rid of it sooner than later with the less than 5-year incentive.
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May 10 2012
If you are putting down 5% or more, than you do not want an FHA loan. The FHA loan charges an upfront mortgage insurance premium of 1.75% of the base loan amount (sales price - down payment). This MIP is typically added to the balance of your loan.   Then FHA also charges a monthly mortgage insurance which is based on the numbers Clay provided you below.   Bottom line is FHA mortgage insurance is EXPENSIVE!

The mortgage insurance is much cheaper on a conventional loan, therefore I advise all of my clients to put down 5% and not go FHA. The amount of the mortgage insurance on conventional loans varies amongst different mortgage insrance company. The amount depends on several factors; including credit score, down payment, term of loan, occupancy, and loan amount.  

For example... 30 year fixed, loan amount under $417,000, 720 FICO score, primary residence

90.01 - 95% LTV...   MI = .67% of the loan amount
85.01-90% LTV...   MI = .49%
85% and under...   MI = .32%

MI can be cancelled once you hit 80% LTV... you don't need to wait 5 years like FHA.

Hope this helps!

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May 10 2012
LOL, some strange answers. If you are getting a 30, 25, or 20 year FHA loan the monthly MI will drop off once you pay the loan down to 78% loan to value. If you accelerate the principal payments and reach the 78% mark in 2, 3, or 4 years you still have to pay a minimum of 5 years. The factor will be 1.20 ( 5% or more down payment ) or 1.25% ( less than 5% down payment )    If you are getting a 15 Year Fixed the factor will be lower and the monthly will fall off as soon as it hits 78%, no minimum number of years.
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May 10 2012
 
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