Financing in 07030>Question Details

 Buyer09, Real Estate Pro in Hoboken, NJ

What do you think of an 80-10-10 loan?

Asked by Buyer09, Hoboken, NJ Tue May 26, 2009

We're buying a condo, as you know. The purchase price is $400,000 and we're putting 10% down. So, we have to pay PMI (about $160 per month).

We qualify for a 360K loan at 4.875 fixed.

One lender told me that instead of that, we can do $320K at 4.875 fixed, put 40K down, and get another loan for $40K at 5.25 fixed.

I dont think we can deduct PMI bc of our income, but can deduct the interest on the 40K loan, right?

I like the idea of not paying PMI and having more equity, but I don't really understand it all. We plan to keep the condo for 5 years.

Thoughts?

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6
The better option is lender paid pmi built into the rate. Then you can put as little as 10% down and also get the tax deduction.


Call me i can help get you closed.




Jose Martinez
201-406-6983
0 votes Thank Flag Link Thu Aug 15, 2013
I agree with making a simple side by side comparison of the various options on your loan. I recommend you contact a local mortgage banker/broker who uses the Mortgage Coach Edge program. No other software program will provide you greater detail to truly understand your options.

@David, Mortgage Insurance will certainly "go away" at 78% LTV. The Homeowners Protection Act (H.O.P.A.) which passed in 1998 in response to unethical practices with several mortgage insurance companies sets down the requirements that a MI company MUST comply with to remove mortgage insurance. Of course, they can require a current appraisal, no late payments in the past twelve months, a fee...ect.; however, they CANNOT refuse to remove the mortgage insurance if the property value is at 78% or lower. Prior to the passage of H.O.P.A., you are absolutely correct that many MI company's were completely inconsistent about the protocols for dropping the mortgage insurance. In fact, I often chastened LO's for promising borrowers that the lender would ABSOLUTELY remove the mortgage insurance at a specific time. ...It was totally inconsistent amoung both lenders and MI companies. H.O.P.A. is actually one the few legislative changes that has effectively assisted homeowners.
0 votes Thank Flag Link Thu Dec 8, 2011
Buyer09,

PMI does NOT automatically go away at 78% loan to value. PMI can go away if the lender agrees based on the buyer paying fees to reevaluate their PMI on the current market value or purchase price (whichever is LOWER). Plus, the buyer's payment history and credit score are factored into this decision. You should verify this process with your lender.

I think it is a great time to buy in Hoboken for someone looking to stay here for 5 years. The second answerer is right on how you should look at this, based on your actually monthly payment. Depending on your income you can deduct the interest on the second loan, and most likely NOT on PMI. So we will assume you get a 30% deduction on the loan for comparison, ok?

OPTION 1: PMI
360k loan $1,900 plus PMI of $162 for a total payment of $2,062 per month

OPTION 2: 80-10-10
360k loan of $1,900 plus 40k loan at 5.25% of $221 for an actual payment of $2,121 per month
LESS the additional $62 deduction you get on the second loan, your adjusted payment is $2,059

Obviously, verify these numbers and NOTE that interest rates might be lower right now. So if you qualify to deduct the interest Option 2 saves you $3 per month. If you take the 80-10-10 option how much principle would you pay off? About $3,240!

If you need any help in determining your current estimated market value, let me know.

David Paris, Realtor
Century 21 Innovative Realty
Web Reference: http://www.hobocondos.com/
0 votes Thank Flag Link Thu Dec 8, 2011
these types of exotic loans helped cause the real estate depression that continues to this day...the 2nd and 3rd loans are at high rates.

stay away
0 votes Thank Flag Link Thu Dec 8, 2011
I think if you're looking at a 5 year time horizon, you'll want to do whatever makes your real monthly payments lower, including tax advantages. With the current economic conditions and the huge transaction costs with buying and selling real estate, your gains on this purchase will be near 0. So you shouldn't really look at what is the best if prices improve, but what is best if things stay exactly how they are now, or go down a bit and come back, or go up a bit but not a lot. And from there, take whatever choice saves you the most money over the 5 years. I could be wrong about appreciation, but if history is any indicator, there won't be any nominal or real growth for a while.
0 votes Thank Flag Link Tue May 26, 2009
Well, I think the fact that you're planning on staying in the condo for 5 years is the answer. If you do the 80-10-10 you will have those payments for the next 5 years , if you choose to do the PMI it will only be until the unit appreciates another 12%. At 78% it stops. Evaluate the Hoboken market ( my daughter and son inlaw live there), or have your agent do it for you and you'll see not that depressing!!! Experts are saying we are near bottom if not there, so you will see a decrease in inventory soon..... supply and demand, it rules! Calculate the total amount of payments both ways, see which is most beneficial on a 5 year stretch. I like to keep the money, so I also evaluate how much more or less I'm spending, and what's left in my pocket. I hope this was helpful.
0 votes Thank Flag Link Tue May 26, 2009
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