Is it 20% or PMI or nothing for me?

April 29, 2009 7:36 PM

What should we reasonably expect to need down for a mortgage when we move?

All this is in the US:

So we bought our first house during the pre-crash boom, about five years ago. We were of course in the Land of Sweetheart Deals, mortgages being handed out like candy back then, and we got a loan for essentially 100% of the value of the house. I don't recall off the top of my head what we paid down, but it wasn't more than a few grand on a $140k home.

That plus only five years of payments means not much equity in the house -- my area (central Arkansas) hasn't been hit as hard as some of the rest of the country by falling house prices, so I'm guessing but have not yet confirmed that with the improvements we've made, at worst the house is back down to being worth what we paid for it, just by eyeballing other homes for sale in the neighborhood.

Well, now a combination of growing pains (toddler, plans to make another baby) and very shitty neighbors (long story) are making me very itchy to move. Ours is a starter home, just a small bungalow, which I'm given to understand are still selling fairly well here, what with stimulus money for first time homeowners and all that.

However, I know the lending market has puckered up. I'm very doubtful I'd be able to find a mortgage like this one, tiny down payment with no mortgage insurance, but I'm curious if there are banks doing loans like this (or an 80-20, maybe) for people like me who have awesome credit, a very good debt-to-income ratio, a two-income white-collar family, and a history of making mortgage payments every month for five years.

So bottom line: are my options realistically going to be either PMI, or save up $40,000 for that $200,000 house? Or are there banks looking at extremely low risk people like me and thinking "Hey we need some non-toxic assets on our balance sheet, so let's give him a deal?"

Yes, I know I need to actually go talk to mortgage lenders to see what's available in my area, but I'm hoping some of you are working in lending yourselves and can give me a sense of exactly how guarded banks are when it comes to issuing mortgages -- I'd hate to waste too much of a lender's time right now, as it'd realistically be at least several months to a year minimum before we're really ready to move.

posted by middleclasstool to work & money (11 comments total)

Waste their time. They're not doing anything anyway! There is still private money options. Ask around to Realtors about it. Sounds like you have done the smart thing so far (didn't suck all the false equity out of your home) so start looking for loans now so when you find that new home you are ready to deal. Good luck!
posted by patnok at 7:49 PM on April 29

just by eyeballing other homes for sale in the neighborhood.

don't look at list prices, look at what's been sold.

Check out FHA lending -- they still have low down payment requirements.
posted by mrt at 8:00 PM on April 29

If you meet certain income restrictions you may qualify for mortgage programs will allow you to avoid PMI. See if there's a Community Development Corporation or something like that in your region and make an appointment to talk with them.
posted by Songdog at 8:01 PM on April 29

Am I wrong in believing that an FHA loan will require PMI? IIRC, that's why we didn't go for one on our first house.
posted by middleclasstool at 8:02 PM on April 29

FHA is "PMI" (actually government guarantee) of your mortgage.

80/20 is dead now since all the /20 lenders and originators have died.

FHA is 3.5% and in most markets you can still get 5% apparently.
posted by mrt at 8:19 PM on April 29

If others know more about this then please correct me, but from what I've gathered FHA loads just require a different type of mortgage insurance. You can put 3.5% down but I believe you typically have to buy a point at closing, so that's 4.5% down with less equity than you have with a conventional 5% mortgage. I also have heard that even if your house appreciates dramatically in a year or two and you find that you have 20% equity you're locked into at least five years of mortgage insurance payments under FHA while you can get out from under PMI in two.
posted by Songdog at 8:31 PM on April 29

FHA is "PMI"

Yes, but what I'm getting at is additional insurance costs as you would have with a loan that requires PMI, which we're hoping to avoid based on our history and credit if we can. According to this that means 1.5% down and 0.5% per year for five years. Which amounts to $3000 up front and another grand a year for five years. Not a deal breaker, but not a best-case scenario, and one in which we might actually save money going the PMI route instead.

On preview, more or less what Songdog said.
posted by middleclasstool at 8:36 PM on April 29

I just put in an offer with less than 10% down. I could have gone as low as 3.5% easily.
posted by fshgrl at 8:58 PM on April 29

We bought our house last month with 5% down. If you do anything under 20%, you'll be doing PMI. The big thing now is your ability to prove that you're a good investment for the bank. Five years of ontime mortgage payments probably helps you a great deal, but still take some time to review your finances before talking to lenders.

The other factor is whether or not the market you're in is being assessed as declining or not. If it is declining, the amount you need to put down tends to go up as the banks try to cover their ass by making sure it's harder for you to get upside down on the loan.

But yeah, bug the lenders. Look at the local banks before talking to the big boys.
posted by robocop is bleeding at 6:35 AM on April 30 [1 favorite]

Right now there is no set down payment. However it is a good idea to throw down about 10%. Then again I bought my house 4 years ago.
posted by Mastercheddaar at 7:04 AM on April 30

I'm looking in the Chicago area and have been told that the amount needed down and the possibility to avoid PMI can change by the individual neighborhood. Even Lincoln Park is being called a 'soft market' by one lender and they're requiring 15% and PMI.

I haven't been able to escape PMI in any neighborhood without getting to 20% dp, but YMMV.
posted by joemax at 12:43 PM on April 30