Investor · Bethesda, MD · Member since 2012 · 80 posts · 3 votes
Hello
I have read various articles on avoiding PMI by paying 20% down or getting a second mortgage bascially somehow bringing the LTV below 80%.
I have a few questions. I am looking to invest in a Condo $125K. This is strictly for investment purposes basically renting it out. I already own a house (Paying mortgage). Taking this as an example if I put down around 25K I should be able to avoid the PMI. Thinking strictly from investment purposes is it possible to put down less maybe like 10% and do like 80/10/10. I know if someone wants to live in the property or its a first time buy its doable, but in the case of investment is it doable also.
Second on average what is a closing cost on a property for $125K (I know it depends on the area or loan company) but is there a rough relation "%" between the loan value and the closing cost. Any tips would be nice...Thanks
Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
13y
In general, loans which exceed 80% LTV (20% down) have a higher chance of loss due to default. So the Mortgagee (Lender) will require Mortgage Insurance.
If there is two loans, like a 80/10, this will avoid MI. They key number there is the Loan to Value of the first lien. If it exceeds 80%, chances are you will see mortgage insurance.
In addition, some loans mandate MI such as FHA loans.
The occupancy of the property is not what drives the MI. Investment properties tend to not have MI because in their nature, they require more of a down payment to get the loan. Investment property purchase mortgages top out around 85%, which would require MI in most cases. You could do an 80/5/15 which would be two loans and avoid the MI. In your example, $25k is 20% down on a $125k purchase.
There is a relationship between closing costs as a percent of purchase price. It is a bit geographically driven as well due to tax, insurance and recording fees and rates, etc. The best way is ask a title agent to give you a draft HUD1 with some mock numbers. (this also lets you see the title company fees) If it is high level inquiry to get you in the church, I tend to use 5% for easy math. There is also a difference when you have a mortgage and when you pay with cash. The mortgage transaction is more expensive.