How to NOT put 20% down at a bank and not pay PMI.

Question

So I know this sounds crazy and almost impossible right? So my bank (Navy Federal- a credit union) has conventional loans to where you can put down 3% and still have 0 PMI. It's crazy.

The downfall is that I don’t see a lot of other banks doing this, if any. Does anyone have any experience with a bank that does the same thing? Or is this a unicorn bank?

Julee Felsman · Answer

Hi @Devan Sprayberry,A lot of credit unions offer portfolio loans (and a few banks) with no MI -- some even with zero down. MI covers some of a lender's losses in the event of a default and foreclosure. When a lender offers a no MI program, they're taking on this risk/potential costs, with no safety net. Therefore these programs tend to have higher interest rates. I talked with a client earlier this week who was offered a zero down loan from her credit union with a rate in the mid-4's. If she pays 3% down using the more traditional program she and I discussed, her rate will be in the very low 3's (maybe even just under 3). Of course she'll have to pay MI... and a down payment. She has great credit, so her MI cost + the lower rate will be close to 1% lower (in aggregate) than the cost of the zero down/no MI option. But in exchange the lower rate and lower loan amount will net her an overall lower payment to start. And the bonus of having separate MI is that it can be canceled at a later date (something to look forward to).Worth mentioning, MI can be paid in monthly installments (the traditional method), but there is also an option to rip the band-aid off and pay it in a single premium. Single premium MI can be a great deal (less overall cost than monthly would be over time). "Borrower paid" single MI can be paid in cash (adding to closing costs) or (sometimes) can be financed into the loan. "Lender paid" single MI is paid (as you'd guess) by your lender. This sounds pretty awesome -- I mean why not make your lender pay, right? But the lender has to get the money from someplace... and that someplace is from increasing your rate so that your loan generates more revenue over time. So, there's a chance that Navy Fed's "no MI" program actually does have MI... it's just that they've elected to purchase the MI behind the scenes and built the cost into an increased rate. I recommend comparing no MI options with others to make sure you are getting a loan that best fits your overall plans and needs.Cheers!Julee

Julee Felsman · Answer

@Devan Sprayberry, my opinion is that the loan officer is as important as the lending institution. Of course, consider the source... this is coming from a career, 26 year, loan officer. ¯\_(ツ)_/¯Your different lending options are: bank-banks (big 'uns and local), credit unions, mortgage brokers and mortgage bankers. I work for a company (Guaranteed Rate) that is a mortgage banker that maintains the option to work as a mortgage broker too.Nearly all loan officers are compensated on commission and only get paid when a loan closes. This is why I like working for a banker/broker. I feel it gives me the broadest set of loan options to offer, which gives me the best chance to find a good match for each potential client, have them hire me and get to closing so I get paid. That's a very loan-officer-centric answer to your question. As a consumer, you have a broad landscape of options... make some calls, do your research and find the best fit for you.But don't forget to ask questions about things besides the loan terms... the process, the ability to collaborate with you and your realtor, answer your questions, guide you through the choices you'll need to make, close in a timely manner... all of these things matter too!

Varun Talluri · Answer

@Devan Sprayberry If you are eligible for a FHA loan the down payment can be as low as 3.5% but the mortgage payment includes insurance.

Devan Sprayberry · Answer

@Julee Felsman I would love to connect and talk a bit more about your expertise. I’m still fairly new to this game but have been learning for right under 2 years so I am sure you are a wealth of knowledge.

Devan Sprayberry · Answer

@Varun Talluri I definitely thought about it but with Navy Federal it doesn’t require the PMI. So I’m doing a bit more research on the best possible outcome.My fiancé and I will be putting down 3-4 percent anyways so it’s interesting to see what the best terms will be.

Devan Sprayberry · Answer

@Julee Felsman @Julee Felsman Love the information. I am excited about calling the bank to see what they do. It only makes sense that the money “HAS” to be there. But I’ll check it out- there’s always that slight chance that it’s not. I’ll also be looking out for these other lower percentages from banks. Do you recommend any of the big name banks or would you suggest going to more local banks to see about a better rate? (Navy Federal has some good ones going on)