How to Avoid PMI With a high loan to value: 3CALoan
In conventional loans, if you borrow more than 80% then you have to pay PMI which cost you hundreds of dollars every month. You have to pay it until you reach 80% of the home value and if you borrow 95% of the value of your home then it could be a long time. Even with home appreciation, you will still have to pay in thousands of dollar in total. We have two Mortgages to avoid PMI with a high loan to value.
What Does PMI Do?
Before you decide how you want to handle your loan and hitting less than an 80% LTV, you should know what PMI does for you. PMI is not beneficial for you at all and you will pay for the insurance but it will give an advantage to the lender. If you have a high Loan to value then there will be a higher risk for the lender and they protect themselves from this risk with the insurance policy. The insurance would then cover a large portion of the amount you did not pay.
Two Mortgages to avoid PMI With high loan to value
Take a Subprime Loan With an LTV Over 80%.
Loans like FHA and USDA loans, they charge mortgage insurance but you pay that on any loan regardless of the LTV. Conventional loans are the only loans that charge PMI. Subprime loans offer loans with LTVs as high as 95% in some cases.
If you want to have loan check with various lenders in your area as well as online. You will come to know that there is a large variety of options available. Every lender has a different requirement credit score, down payment, and debt ratio. Find a loan for you with an affordable interest rate and closing costs.
Take a Piggy Back Loan With High Loan to value
If you have a good credit, you can easily qualify for a piggyback loan. You can two loans instead of using borrowing the full amount of the home. For example, you need $360,000 for a $400,000 home. You can able to get what lenders call an 80/10/10.
You can borrow $320,000 that is 80% of the total home value of $400,000. Then you will leave with $80,000 between the amount you borrowed and the purchase price. Then you can opt for a second mortgage of 10% piggyback loan i.e $40,000. It counts as part of the down payment on the loan. You will pay $40,000 itself as a down payment. You only need to borrow 80% of the home value on the first mortgage and then you will be left with 20%.10% of it you can pay as a down payment and a 10% down payment from the 2nd mortgage.
In these two mortgages, you can get a decent interest rate on the second mortgage which is comprised of just principal and interest. The first mortgage would include your principal, interest, taxes, and insurance. The one thing you would not have to pay is PMI.
Ask for a Seller Credit
If you find subprime loan too expensive and don’t want a piggyback loan then you will be left with one last option. Ask the seller for a seller credit and if he agrees you can use the amount to pay the PMI in one lump sum. You don’t have to pay any more money If you will choose this option because you will pay the full amount. Even though the seller pays the amount for you, you’ll pay it in a higher sales price as the seller needs to make up for the money he loses.
Final thoughts
It depends on your situation that If you can afford the second mortgage, take the piggyback loan. PMI is the easiest way to avoid the insurance payments. You’ll likely have to put down 10% of your own money. If you can’t afford the 80/10/10, consider a subprime loan. If the home where you are living is not your forever home, the lump sum payment does not make sense. You’ll overpay for insurance that you don’t need. We help our customers every step of the way. To find out more information about loans and how we can help, contact us at (818) 322-5626 or (818) 3CA-Loan today! We will run you through the details of loans and hold your hand throughout the process.
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