Minor hiccup, what would you do?

Question

Hey Everyone,

I’ve been looking at house hacking a duplex in the Twin Cities area, mainly near St. Paul, with the intention of putting 3% down (There’s a credit union through my work that offers this program without PMI.)

I’m currently renting in Minneapolis and paying over $1k a month so I’m trying to get out of this situation ASAP. I had a meeting with the mortgage lender today to be pre-approved and found out that the 3% is only offered on SF and a duplex requires 15% if you don’t want PMI, 5% down adds PMI.

I want to get out of renting so it seems my options now are:

1. Buy a SF home to use as a live in flip (also been searching for 2B homes over 1k sq feet for the potential to add another bedroom)

2. Lower the price range I’m looking at for a duplex (it already wasn’t too high) in order to take the 5% down payment with PMI

3. Keep saving until I can comfortably afford 15% down on a duplex

Thanks all!

Mitch Kennedy · Answer

@Randy Bloch, @Kurt Pauley, and @Alyssa Strom thank you all for the advice! Really appreciate it!

Alyssa Strom · Answer

@Mitch Kennedy I'd stick with option 2 and just be patient in your search. Although no one likes paying PMI (myself included), it allows you to get into an investment property far more quickly. Like @Tim Swierczek mentioned paying rent while saving for a down payment on a future duplex seems to defeat your ultimate goal of house hacking now. It's definitely competitive out there but I've seen some decent options under $300k. I walked through two duplexes this week in the $230-$250k price range where it was mostly cosmetic work that was needed. Plus the potential to add equity given you're only putting a small amount down is an ideal situation.

Randy Bloch · Answer

@Mitch Kennedy

I agree with  what @Tim Swierczek and @Alssya Strom has said about PMI....plus when you build up enough cash or the property appreciates you can get rid of PMI so not like you are locking yourself into a PMI payment for 30yrs.

Kurt Pauley · Answer

Hey @Mitch Kennedy !

I say go with option 2. Mortgage insurance is worth it if you can start house hacking and get into a investment that still has some room to appreciate. There are a few areas out there where you can achieve this.

Tim Swierczek · Answer

@Mitch Kennedy depending on your credit score you can get a no MI option at 5% down but it will affect your interest rate, or you can execute an MI buyout option.  I have seen this done for as little as 6.15% down but its typically closer to 7% down.

Mitch Kennedy · Answer

Thanks for the response @Tim Swierczek and I really appreciate the insight. That definitely helped narrow my options down a bit and think about some other next steps.

Tim Swierczek · Answer

@Mitch Kennedy  First, PMI is just not that bad.  It will be far more expensive to wait until you have 15% down than just paying PMI.  This is because the house you would buy today for say 300K (this is a typcial but low price for an owner occupied duplex in the Twin Cities) is projected to cost you $315K next year.  This means that as you save the first 15k will be a wash and while you willl be chipping away at your need for PMI you do not elimiate the need, in this situation you are essentially treading water.Second, there are options that your other loan officer are not offering you.  Not sure why they didn't tell you but the "No MI" option is not really no MI, it just mead the lender is paying it another way.  It could be built into the rate, the closing costs or some other way.  Even the credit union must do this, their regulator does not allow them to give 3% down loans with MI coverage.  They would be shut down if they did that.  The short answer is you have other options than what you have been presented.  I would recommend you get a second opinion.

Minor hiccup, what would you do?

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