Is it possible to do 3.5-5% down without PMI?

[Jason Meadows]

Hi BPers,

Sometime in the last 6 months or so I remember hearing David say on the podcast that you could do an "FHA-like" situation without actually doing an FHA loan. The result in the scenario he described was that you could put 3.5-5% down without having to pay PMI. I think it had something to do with getting a normal 80% mortgage and then getting a secondary mortgage. Has anyone done this? How does it actually work? Any pitfalls to watch out for?

Thanks in advance,

[Jason Wray]

Jason,

There are a couple of way of attacking your purchase to avoid PMI. First you could do an 80/20 loan where there is a stand alone 2nd mortgage to cover the 20% so the first is sitting at 80% LTV with no PMI required. The other option would be to come in a little higher on the asking price or at full asking price with a stipulation for seller contribution up to 5-6%. So by asking the seller to contribute up to 6% towards closing costs you could use that buy out the PMI. You have full buy out and partial buy out to remove or reduce the monthly PMI.

Some lender allow you to opt for a higher rate and that will offer a lender credit to also buy out the PMI. Last option find a bank/lender that offers the 85% No-PMI loan. You also can use DPA and go that route but your tie to the house for the required term before you can sell/refinance with cash out without having to pay what the DPA gave you for the DP.