Profile picture for wkwent

What are your thoughts on an 80/15/5 scenario to avoid PMI?

We have excellent credit and want to buy a new house.  We have equity in our current home, but are thinking of renting it for now rather than selling it which means our available cash for a down payment is limited.  Can anyone give me their thoughts on doing an 80/15/5 (80% 1st mortgage; 15% 2nd; and 5% cash down) to eliminate PMI?  The rate we were quoted for the 1st was an attractive rate.

Thanks!!
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June 01 2010 - US
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Answers (19)

If they quoted an 80/15 and you signed 80/15 docs, then they have it. You mentioned it was higher on 1 loan but when I compare 1 loan at 4.75% with MI, it is a lower payment than a combo with a 2nd/15 Yr at 8.375% combined with a 5% 1st. If you were to get 4.75% on 1 loan and applied the difference in payment as additional principal, you would be better off with 1 loan w/MI, even if it took 10 years to have the MI removed. If you were to take out a 2nd on the current home to use for downpayment, you may run into a problem with the lender if you convert the existing home to investment and the terms may not be any better anyway.
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June 04 2010
wkwent...If you are in PA you may want to also look at some sort of single premium or Lender Paid MI.  You would just have one loan and even at the increased rate, the monthly payment would be less than splitting the loan up.  I know the Philadelphia area in not considered a declining market so you could do one of these options up to a 95% LTV. 
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June 03 2010
I certainly hope the offer is legitimate.  As a small bank, it should be pretty simple for your loan officer to know if the program is available or not.  And given what you need to accomplish, it is so important you know for sure.  Otherwise, you would have chosen plan B in the beginning.  

Dave is spot on about the reserves.  You might need a bundle of assets sitting somewhere in order to close this loan.  Though this lender seems to have something going on that many don't, so who knows.

If the 80/15/5 does exist with the bank, take some solid time with your loan officer now to be certain you fall in line with all the underwriting requirements. 
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June 03 2010
I would be nervous   ( as all responders  have indicated its unlikely to exist)...the fact that  this is a smaller  bank  might mean that they can provide this ....but if they can , its quite unusual

( also - as noted - make sure that  they have you approved  with all 3 of your mortgages factored into to your  qualifying ratios....2 new loans for the new house and the existing loan on present home....fyi- most lenders  are  asking to see  6 months of  payment reserves for all properties  left in bank accounts post closing too )
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June 03 2010
It really is market specific.  Just get confirmation from her via GFE and TIL.  Like Wayne Lancaster said, we see these loans done in TX today still.

Naima
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June 03 2010
Profile picture for wkwent
I hope after being this far into it that my lender has not misspoke about what type of financing that she can provide.  I am dealing with a small/local bank here in PA.  She indicated that they sell the 1st mortgage and hold the second in house.  Should I be nervous? 
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June 03 2010
I'm curious as to which lender is offering a purchase money 2nd to a 95 CLTV and in what state?  The only programs that I am aware of which seem to come close to that would be something specialized like the CAL STRS 80/17 loan.  Is this a thread from 4 years ago by chance? ;)
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June 03 2010
As you qualify for both houses and have equity in the current house.... Take out a second on the current house and use it to make a 20% down payment on the new house. Once to move and or rent the current house you may never be able to get to that equity again...until or unlessyou sell!
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June 03 2010
If you have someone doing a 2nd to 95% then you should run with it, close tomorrow and never look back.  I don't know a single bank that will go above 85%.  I haven't heard of anything above that in a year so jump on it while it still exists (if it does).
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June 03 2010
Profile picture for wkwent
@ Clay - The rate for the 2nd is 8.375 (15 yr fixed)

@ Carol - We do not need to show the rental income to qualify, but thanks for the heads up.  I have heard that alot of regulations have changed recently.

@ All - Thanks for the comments!!!
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June 03 2010
What is the rate quoted for the 2nd and is it a fixed rate loan or a line of credit? If it is a Heloc, what is the add to the Prime rate?
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June 03 2010
@wkwent, if you have that offer on the table, yes, I would go for it since it truly suits what you want to do.
 
If you will need to use rental income on your soon-to-be investment home in order to qualify for the new loan, be sure your new lender is clear on the requirements to use that rental income. Rules have gotten sticky lately.

Best to you.
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June 02 2010
Profile picture for wkwent
I do have a lender offering an 80/15/5.  The rate is obviously a little higher on the 2nd, but a great 30 yr fixed rate (5.0%, 5.06% APR-with no points) on the first.  It was actually cheaper to do a 1st @ 80% & a 2nd @ 15% than a 1st @ 95% & PMI.
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June 02 2010
Do you have a lender offering you an 80/15/5 option?  Haven't seen one in a while in this market? Lenders don't want that "15" position where values are unstable.
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June 02 2010
If you feel confident that the rental on your house includes PITI (Principal, Interest, Taxes & Insurance) and HOA if you have one will cover you, and after purchasing the new house, still have some reserve for vacancy time & general maintenance.

The 80/15/5 could be an excellent scenario for many people.  My sister purchased her house 4 years ago with this and last week she paid off the second lien (15% one).  She had been paying a little extra every month on it since the payment was small enough.  The second is usually due in 15 years.

One other thing you should know is that your closing costs will be higher since you will have fees for the second loan too.

Naima
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June 01 2010
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I am not a pro, but it sounds like a good start on ruining your credit score and possibly losing both houses. The more leveraged you are, the more exposure/risk you assume. With increased risk, you also increase the possibility that you won't be able to salvage the situation if it all goes south on you (i.e., rental stays vacant, rates adjust, something impacts your income, etc.).
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June 01 2010
It is likely to depend on the area.  In the Dallas area 80/15/5 loans are available with restrictions such as  credit scores, reserves, no first time homebuyers among them.  Unfortunately, Zillow does not support 80/15/5 loan quotes/responses so best option is to tell where you are located and local lenders can respond on this thread about availability of 15% seconds.....
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June 01 2010
I don't know of any lenders offering 2nd mortgages to 95% but if one is available in your area I am a fan of the combo loans as long as you understand the terms of both mortgage products.
Many (including us) will  have availability to 89.99% CLTV if you can get the other 5% from your 401k or gifted.

All the best!
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June 01 2010
its  impossible to get a 80/15/5 these days as there are no lenders ( first or 2nd mtg ) offering  this high of a ltv/cltv  scenario
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June 01 2010
 
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