Home Buying in Needham>Question Details

Realty Green…, Home Buyer in Needham Heights, MA

Second mortgage to avoid PMI. Pros/Cons?

Asked by Realty Greenhorn, Needham Heights, MA Mon Jan 28, 2013

My budget is 400-475k. Even though we could afford to do a 20% down payment we just want to lower our down payment % so that we 've some more extra cash that can be used post-move-in.

A mortgage broker I met last weekend suggested that by taking a 2nd mortgage we can avoid PMI altogether. Is this possible? Even if its possible what are the pros/cons to consider.

One of the concerns I had was that I have to deal with 2 lenders in order to avoid this PMI.

Pls fee free to comment on this scenario as well as other options that are available to help us avoid PMI or make it quite low.

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Answers

3
Heath Coker’s answer
I would contact a local lending professional to help with this answer.
There is not enough detail in your question.

I know this guy can be helpful: rtranchell@totalmortgage.com
Bob Tranchell Total Mortgage Services LLC (508) 367-5731 cell


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0 votes Thank Flag Link Tue Jan 29, 2013
BEST ANSWER
Your payment will be lower with two loans. Paying two loans is not that big of deal.

One of the issues though is the second mortgage typically being a Home Equity Line of Credit. A HELOC is basically a credit card with a term limit. It has an interest only payment which makes the payment of the two loans favorable to one loan with PMI. The danger is in only paying the interest only payment which means your loan balance never decreases.

In the past most who went the two loan (to avoid PMI) route could epxect their home value to grow over a couple years and eventually consolidate the two loans together with no PMI. These days, home values are not growing as fast.

PMI factors/rates have come down a bit in the past year or two. There is also the option of a single premium PMI where the cost is built into the rate. I would suggest looking at all three:
1. two loans to avoid PMI
2 One loan with PMI
3. One loan with PMI built in (also know as Lender Paid PMI).

its easy enough to get figures.

Goood Luck

rshapiro at assetmortgage dot net
1 vote Thank Flag Link Mon Jan 28, 2013
9.5 years ago we took out a mortgage just like that, with a HELOC on top of a 30 year fixed mortgage. Back then I had no idea what it was, didn't know it was "interest only," and since she pays the bills, my wife was just merrily paying what was asked each month, until I saw what she was doing and asked her to pay more on that one. When I recently began taking a "deep" look into our mortgage papers, because a guy from Green Tree Servicing, LLC is pressuring us to renegotiate for a lower interest rate on the 30 year loan, under HARP, which doesn't cover the HELOC, I noticed that that HELOC has a MATURITY of 10 years!!! Since we have only paid a small fraction of the principal, when it comes due, what happens? Will we lose the house, or go to jail, or what? We cannot pay the $32,880 outstanding debt when it comes due. Is there any way out of this?
Flag Wed Oct 23, 2013
This is a practice that was popularized a few years back, when property values climbed and borrowers were trying to nail down a lower rate conventional mortgage instead of paying the higher rate of a jumbo loan. It is also used to avoid PMI when your loan to value exceeds 80%. The first mortgage is the 80% loan, therefore avoiding PMI, and the second loan can be held "in house" with the lender. I would suggest you use the same lender for both loans so they can be processed and recorded simultaneously. A good community bank can probably offer competitive rates and set up the two loans. You aren't really assuming any more risk than if you only take one loan.
0 votes Thank Flag Link Mon Jan 28, 2013
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