How to avoid mortgage insurance with less than 20% down payment?

We understand that there are low down payment programs out there for our buyers such as FHA loans with 3.5% down payment and VA loans with zero down. If our buyers are not eligible for VA loans and would like to find an alternative to FHA loans with mortgage insurance (MI), are there other alternatives to avoid MI? We have heard of a loan program from Union Bank with no mortgage insurance- 5% down payment but only for those whose income are below a certain limit. Any other low down payment programs out there (as little as 5%) without the additional mortgage insurance premium payment that increases our buyers' monthly housing payments?
  • October 16 2012 - Carlsbad
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Answers (18)

Yes Union Bank does offer a low down product for lower income households. But there are actually a number of great options out there for borrowers looking to place as little as 5% to 10% that do not require PMI. Now the options vary a bit based on the purchase price or value of the home. In most cases a 10% down or equity position will be required in order to avoid PMI. 

Of those options the best in my opinion is the 80/10/10. This is where you have a 80% 1st mortgage, a 10% 2nd mortgage and a 10% down. This option typically has the best interest rates as well as the lowest monthly payments. Then there is the LPMI option. That stands for Lender Paid Mortgage Insurance. Basically with this option the lender pays the PMI for you through a slightly higher than market interest rate.

I hope this helps but if you have more questions or would like to see if you qualify please contact me through Zillow or through my personal website. Best of luck!
  • April 06
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This  conversation went off track....

The answer to your question is actually, no there is no way to avoid mortgage insurance with less then 20% down.

There are however, many ways to pay mortgage insurance.

-Borrower paid monthly - this is the typical MI that is paid with the bill every month
-Borrower paid single premium - this is a one time lump sum fee that can be either paid at closing by the borrower, or depending on the details it can be financed or paid with seller concessions.
-Lender paid mortgage insurance - this is also a one time payment option, however instead of your borrower paying the lender pays.  The way they do that is generally by passing on a higher rate to your client.

Different down payments require different premiums, there are also some special programs designed for the lower income that have lower mortgage insurance costs.

Fannie Mae has My Community, and Freddie Mac has Home Advantage.  These are both 5% down loans that have lower mortgage insurance requirements.  

From their it's all spin.  What Union Bank is doing is offering a Home Advantage, or My Community with 5% down, re-branding it as some special program and saying 'mortgage insurance not required'.  What they are really saying is 'we are charging a higher rate and covering the mortgage insurance'  

If you need any more info, feel free to message me.  



Good luck!
  • November 25 2013
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You can refinance out of FHA at anytime so once you qualify for Conforming you can refinance then.
  • November 24 2013
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Profile picture for jason kapus
I am not able to go convention due to various personal reasons. So bottom line I am stuck with this.
  • November 24 2013
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@ Jason:

There is no 5 year rule anymore ( did your LO tell you 5 years to remove? ). If you are putting down 3.5% the MI on an FHA loan never comes off, if you put down 10% the annual MI ( charged monthly ) would stop after 11 years. Put down 5% and go Conforming.  
  • November 24 2013
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Profile picture for jason kapus
I am purchasing a short sale well below market value. Appraisal comes in showing 50+k of equity while putting additionally 3.5% down at closing with costs. Am I to understand that even though according to the appraisal. I own more than 20% of the value, under no circumstances I have to carry MI or LI or aka PMI: because it is an FHA mortgage and there is a 5 year mandatory limit? If so, would I have to wait out 5 years and seek a new appraisal to submit for dropping such outrageous insurance expenses built in the loan. Please advise?
  • November 24 2013
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Jean the answer is yes! There are actually a number of quality options available for people who wish to place a small down down payment while avoiding mortgage insurance.

For conforming loan amounts we're able to offer conventional financing up to 95% of the properties appraised value. And in some cases all the way up to 97%. That is .5% lower than what FHA requires.

When it comes to high balance conventional you are still able to place 5% down in some cases but your best options come from 10 to 15% down. There are all done with either log term fixed or an adjustable rate options.

Please keep in mind that by using conventional financing you no to avoid condo complex's or planned developments that are not approved with FHA or HUD. This greatly opens up your options.

Please feel free to contact me if you have questions about the programs or how they work. I am more than happy to discuss all the details with you and see how much you'll qualify for.
  • November 19 2013
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Community loan products (CRA) can be beneficial and I suggest tapping into them in your area. We have a few products in MN that have no MI requirements and no credit score requirements. They work in specific census tract areas but surprisingly in MN it covers most of the immediate metro area. I just closed on a home where the buyer was turned down from several loan officers because of credit scores. The American Dream program allowed this buyer to close with no MI and have a lower payment then they would of had using FHA or FNMA.

  • November 01 2012
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Profile picture for Pete Tomaszek
HomePath has been great for my clients.
  • October 31 2012
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Assuming your client has a score in the mid 700's, you would want to go 5% Down, LPMI. The MI would be financed into the rate, and even with a higher rate the monthly payment is significantly less than a payment with a lower rate and MMI.
  • October 20 2012
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Profile picture for Mike_Davidson
Jean & Ken,

Your best option is a conventional 95% with a single premium MI policy.  This is simply purchasing a policy with a single payment at settlement rather than paying a monthly premium.  Talk to your lender about pricing your loan such that they could issue a lender credit to offset the cost of the single premium as to not increase your closing costs due at closing.

Additionally, you may want to talk to a local bank or credit union that is still writing HELOC or closed-end second mortgages.  This would allow for an 80% first, 15% second, and 5% down payment eliminating the need for MI.

I hope this helps.  Feel free to contact me through my profile if you would like to discuss this further.
  • October 19 2012
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Thank you Kyle, Cindy, Cory, Ivan, and all who took the time to reply and give us an idea of all no mortgage insurance loan options out there. By the way, yesterday, we learned more about the Union Bank Program from the mortgage consultant we work with in Encinitas, and they do offer the Economic Opportunity Mortgage (EOM)Program both for purchase and refinance, up to 95% LTV, with no mortgage insurance, subject to income limits and location of the property. This significantly saves homeowners/buyers on their monthly payments. They seem to be doing well with this program with as little as 5% down payment or equity (for refinance), so check it out as an option in addition to those programs you have mentioned below!
  • October 19 2012
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There is also the Fannie Mae Homepath, which offer programs with as little as 3% down and no MI. Or, you could try a USDA Rural Development loan, which has no down payment requirement and no MI. USDA does have property and income limitations, and they also charge a monthly fee for the life of the loan but, it's cheaper than FHA's MI and offers 100% financing.
  • October 17 2012
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Profile picture for Cindy Quinton
The HUD 184 or Native American loan is fantastic if your buyer happens to be a member of a recognized tribe. It amazes me how many have never heard of it, even here in OK where we have a higher concentration of Native Americans. With the HUD 184 there is no MI, only a 1% origination fee that can be financed into the loan. You can read more here: HUD 184 Obviously, it is a small niche, but if it enables you to help one buyer, it was worth investigating. Sometimes people haven't bothered to pursue a tribal membership card although they are entitled to it because they don't think there is a benefit.

In Oklahoma, there also seem to be several loans with credit unions that have reduced MI; however, they tend to be a limited amount and sometimes income based. 
  • October 17 2012
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Hi Jean & Ken,

Most lenders offer 5% down conventional loans, but you can't avoid mortgage insurance. The main difference between an FHA loan's mortgage insurance and a low down payment conventional's is, FHA's is mandatory for 5 years, while conventional mortgage insurance can be removed after you have 22% equity. My guess is that if you only have a little money for a down payment, you won't have more money available for a single insurance payment, so it would be paid monthly.

And, the mortgage limit in San Diego County is $697,500, and a Fannie or Freddie loan would be $417,000. Income has nothing to do with it, it's by location.

Regards,

Cory La Scala, REALTOR
Independence Realty
Lic # 01443391
  • October 17 2012
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Thanks for adding value to the question but I never said that FHA had income limits but making a point to the statement "only for those whose income are below a certain limit"


  • October 16 2012
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Profile picture for Go Huskers
"If you work with the right Mortgage Professional...you will wonder why most Loan Officers offer an FHA vs this program. Being conventional...there are no income limits."
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If you worked with the right mortgage professional, they would know that there are no income limits on an FHA mortgage either. Anyone that does not know this cannot possibly be taken seriously.
  • October 16 2012
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Yes...There's a conventional 5% down loan available with Lender Paid or Borrower Paid MI. Your options are a Single Premium or a monthly. I have received approvals as fast as same day when requested from the MI company. If you work with the right Mortgage Professional...you will wonder why most Loan Officers offer an FHA vs this program. Being conventional...there are no income limits.

Let me know if you have any further questions or If you want a comparison spreadsheet for your client.

Ivan 
  • October 16 2012
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