Less than 20% down with no PMI?

Question

Hi, my wife and I are planning on buying out first REI property in Montana in the next few months. We haven't started the pre-approval process yet,but are ready to get started. I have heard that you can get a mortgage with less than 20% down and still not have to pay PMI, does anyone know if this is actually possible and what type of mortgage this would be / what company to go through? My wife and I each have credit scores just below 800, so getting approved shouldn't be an issue.we also are hoping that the property we purchase will be a duplex or triplex, and we would live in one unit for the first year. Let me know if there's anything else that needs to be clarified before you give advice, thanks so much for your time!

Tyler

Chris Mason · Answer

Yes, for SFR, the LO just checks a little box that says "bake PMI into interest rate." Or, next to it, there's another box that says "bake PMI into one-time discount points rather than monthly payment." You can get really fancy and make it an ARM, then you will not even notice the rate hit b/c it's from a "starting" rate that's lower due to it being an ARM. And then their marketing department puts out a flier/website about their amazing "no PMI with less than 20% down!" loan program just for ultra special eligible first time buyers just like you. Stacking the ARM trick on top is especially popular as a special loan just for medical doctors, basically taking advantage of the fact that their 10 years in school didn't include any personal finance 101 component. And because the PMI is baked into the rate rather than a separate line item, it doesn't drop off once you have the equity, so you call them back for a refi when you have the equity, whoop whoop more biz for them.

For duplexes, 15% down works, for 3-4 units the above trickery will not work.

Michael Rutkowski · Answer

You can definitely get no PMI on less than 20% down. But, you need to be a veteran. VA loans are 0 down, no PMI. Don't pay for PMI... If you have to sell a car or something, do that instead. PMI is a drag, and many times will throw your Loan to Value ratio out of whack, unqualifying you. You can get more property if you just put 20-25% down. Sell all your junk, sell your vehicles, borrow cash off the books, whatever, just don't pay that PMI!

Philip Garcia · Answer

@Tyler Brenneman Ask your lender for lender paid PMI. Your rate will be higher but no PMI. Or ask your lender if they offer an 80/10/10 loan program. Finance 80% for the 1st TD, 10% down, 10% as a HELOC (2nd TD). No PMI for an 80/10/10 but you will have the added payment of the HELOC.

Kendal Lamb · Answer

@Tyler Brenneman I have a few great lenders I could connect you with. I use them a lot because they are familiar with investing. Let me know and I can hand over the information.

Torrell Palmason · Answer

As far my knowledge goes, below 20% will require PMI on most loans. The small amount that won't require PMI would be Non-QM but generally that wont accept less than 20% and then maybe some local credit union has a unique loan option. There are options that will remove PMI once your Loan to Value drops below 80%. There are two great starter loans for owner occupied Freddie Mac Home Possible and FHA.

Freddie Mac Home Possible can have a down payment with as little as 3% for a single family or 5% for a 2-4 unit that can be paid by you, a gift, down payment assistance programs or even sweat equity. If you paid 15% down then your PMI would be extremely low and you could potentially have the loan to value down to 80% in a year to two at which point you could remove the PMI. This loan does have income caps that vary depending on location. 2-4 Unit purchases will require landlord education and if you are a first time home buyer then Homeownership education is also required.

FHA can have a down payment as low as 3.5%. The upfront MIP that is rolled into your loan is 1.75%. The monthly multiplier is .85% of the loan amount divided by 12 months to get you mortgage insurance payment. The mortgage insurance is on the loan for the life of the loan but is a low payment. There is no income cap for FHA. If you are a first time home buyer then Homeownership education isn't required but can be required at the underwriters discretion.

There are many options available to you and with 740+ credit score you will get the best rates available. Speaking with a lender to get preapproved and go over options will be your best bet.Best of Luck!

Less than 20% down with no PMI?

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