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

[Devan Sprayberry]

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]

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