Help Me Understand Financing

[Colton S.]

Hey BP,

I had a few questions about financing that I cannot seem to find a clear answer for. Let's say I am looking to buy a house for 70k, the apprasial comes at 85k, which mean the loan is 82.353% of the home's value. Does that mean with a 3.353% down payment, I qualify for a convential mortgage and no PMI? Also, does that mean I have roughly 20k of equity right from the start?

The reason I ask, is we are looking to get a second home and I need to be able to afford it on my current income and would like to avoid FHA loans, if possible because I cannot elimiate PMI without a refi on those.

[Carter Crowley]

Colton, if you only have enough cash for a 3.5% Down payment then it would still be an FHA loan and you would have to pay PMI. Anything under 20% down does come with PMI no matter how much equity in the property. If you were to refinance out of the FHA loan say 6 months-1 year later and had more than 20% equity then you could get rid of the PMI. You do have to consider double closing costs if you go that route though.

Hope this helps.