Closing Costs and PMI

[Mark McQuiston]

Hey gang!

With the most recent offers I've made, I have the capital to make a down payment of 20% of the purchase price. Not a whole lot of wiggle room though - depending on what it exactly it comes out to, I may not be able to cover closing costs while still making a 20% down payment. However, removing PMI will have a fairly significant affect on how the property cash flows for the first few months, so avoiding PMI is a priority.

When using conventional financing, if I roll closing costs into the total loan amount, will I have to come up with 20% of the purchase price + closing costs to avoid PMI?

I've got a call with my loan officer set up for tomorrow, but I wanted to get educated before chatting with her.

Thanks!

[Jon Holdman]

An 80% LTV means your loan amount is 80% of the appraisal or purchase price, whichever is lower. You'll need 20% of the purchase price plus your closing costs and prepaids. If the appraisal comes in below the purchase price, you'll also need the difference between the appraisal and purchase price.

Conventional lenders usually require cash reserves, too. If you have four or fewer mortgages, including the new one, that's six months PITI for the new one plus two months for all existing ones. If you're at five to ten, its six months PITI for all properties.