Home Buying in New Haven>Question Details

Roshan, Home Buyer in New Haven, CT

Is PMI a scam for bozo's who don't have enough cash for a 20% down payment?

Asked by Roshan, New Haven, CT Wed Mar 7, 2012

What about these places I see with 5% down with lender-paid PMI? Scam or legit? Or is it just better to focus on having 20% and not even consider PMI?

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6
Roshan,

Yes it's possible and yes, it's common.

4 ways to pay mortgage insurance
1) Lump sum up front paid cash (or a seller credit)
2) Lump sum rolled into loan amount
3) Absorbed by higher rate (a seller credit could buy the rate back down and effectively pay for it)
4) Paid monthly as part of payment

Any good loan officer can help you determine which works best for you.
0 votes Thank Flag Link Wed Mar 7, 2012
Thanks for the replies. Bozo was probably a poor choice of a word.

A followup question...a friend told me it might be possible to just pay a 1-time PMI premium and roll that premium into closing costs and get the seller to pick those up. Is this really possible and a common thing to do?
0 votes Thank Flag Link Wed Mar 7, 2012
Define Bozo. Some savvy investors might say those that put 20% down are the bozos considering current depreciation and devaluing of houses. One would get a far better rate of return putting the minimum down and allowing their money to work for them elsewhere. The cost of PMI significantly decreases with 10% down and with rates as low as they are, LPMI is a valid consideration even if higher than the going rate.

It's all about perspective and ones financial goal.
Web Reference: http://WeFixRates.Com
0 votes Thank Flag Link Wed Mar 7, 2012
PMI is not a scam but has been around for over 4 decades to allow people to buy homes with a smaller down payment. Most first time buyers have trouble saving 20% because of the taxes they pay to the government(s). I bought my first home in 1975 with 5% down. I am on my fifth home.
If you have lenders paid PMI you receive a higher interest rate then if you paid directly for PMI. The big difference (since PMI is tax deductable) is how long you expect to be in your home. PMI, paid by you, stops when your LTV is 78%. On lenders paid PMI the interest rate never goes down. Which is better for you?
0 votes Thank Flag Link Wed Mar 7, 2012
No, it is just another way that the Lenders protect themselves.
They want the borrower to have some eqity in their house, and this is an incentive to do so.
It is legal.
0 votes Thank Flag Link Wed Mar 7, 2012
That doesn't make any sense to me. How is forcing me to pay $200 extra per month to a faceless entity, $200 that doesn't go to principal or interest, an incentive for me to build equity? If they wanted me to build equity, they'd let me put that $200 a month into the damn house.
Flag Tue Oct 21, 2014
PMI needs to be paid by borrower if down payment is less than 20%. You may read my blog about PMI.
0 votes Thank Flag Link Wed Mar 7, 2012
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