I have just found a dream home, have an household income of 200k and a credit score of 775, but only 5% of the down payment. Should I swallow the PMI?

Asked by Mark Hall, Boerum Hill, Brooklyn, NY Sun Jan 8, 2012

LIke many other people, I've found scraping a large deposit difficult - mainly because income interest rates are so low, so I've been boosting my 401(k) plans. Should I swallow the PMI for a few years, or wait another 12 months to get 20% down?

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Rocco Guercio, Mortgage Broker Or Lender, Massapequa, NY
Sun Jan 8, 2012
Hi Mark,

Depending on the type of property and loan amount, you may have more than one option. If you would like, I would be glad to discuss the options with you. Feel free to contact me directly at 347-462-4210.

Best of luck!

Rocco Guercio
Sr. Mortgage Consultant.
2 votes
First Last, , 90002
Mon Jan 9, 2012
Once you have equity equal to 20% of the purchase price, you should be able to get your PMI cancelled immediately. As you investigate mortgage options, discuss with the loan officer how much various payment scenarios would cost you. Get it in writing, take your time, make sure all is clear to you.

Ideally you want a product that allows you to make extra equity payments without extra fees. Sometimes the lender will charge you if they set extra payments up for you, but often you can do it yourself for free, just by mailing extra checks. Then you could back off on the retirement savings rate and put that money toward getting rid of the pesky private mortgage insurance.

I am 100% against borrowing from your retirement funds for this purchase. The tax hit and penalties are too high, and that money is your nest egg in the event of a personal catastrophe. Most likely it will just sit there until you retire, and that's good enough too.

Interest rates will remain stable for another year at least, because the Federal Reserve Board has declared they will make it so. After that, many observers believe interest rates will head up owing to inflationary pressures. One thing everyone I know agrees on--interest rates can hardly go lower than they are now.

No one has a crystal ball, it's true, but in my most humble personal opinion :) , prices in Boerum Hill and environs are headed up, or at least flat, not down, barring some catastrophe. I believe there is pent-up housing demand out there, and foreclosure purchases are just not for everyone.

I like what you said about your 401K because this suggests you have assets you could access in a dire emergency--say a major medical expense. This is also a good time to review your life insurance, and especially your disability insurance, and when you obtain homeowner's insurance, make sure you insure sufficiently to cover your loss of a place to live in the event of a major hazard loss to the building.

The upside of a low equity position in a piece of real estate is that if you had to walk away, your losses are minimized. That's not necessarily a bad thing. As I love to say: Real estate is an investment whether you like it or not.

All that said, if you're pretty sure you're going to stay put for at least 5-10 years, or that you could rent the place if you must suddenly move to Timbuktu, then if I were you, based on what you've said here, I'd definitely buy the place.

However--since love is blind--it's especially important to hire a licensed home inspector to point out the repairs that are needed so you know what you're getting into. Best of luck!

Karla Harby
Lic Real Estate Salesperson
Rutenberg Realty
1 vote
Anna M Brocco, Agent, Williston Park, NY
Sun Jan 8, 2012
If you are comfortable buying now, no reason not to consider the idea; however do visit with any licensed loan officer to determine qualification and the type of loan; be aware that a mortgage pre-approval letter is required in order to determine your price range and for any offers to be taken seriously.
1 vote
Julie Thum, Agent, Brooklyn, NY
Sun Jan 8, 2012
Good morning. Yes, you will need to do that. You have no choice but to get an FHA loan. Sometimes they can be challenging, but depending on the price of the home, it may be relatively easy. Your credit score & income are excellent, however, you need to be able to demonstrate job history as well as source of income & that income must be "on paper" (not "off the books"). If you would like an excellent recommendation for a very reputable lender who can assist, please let me know.
1 vote
Trevor Curran, Mortgage Broker Or Lender, Great Neck, NY
Mon Jun 11, 2012
Good afternoon Mark,

Strike while the iron is hot. Rates are incredibly low, and it's a Buyer's market. Jump in feet first and make your purchase!

And leave the money in your 401k; you'll thank me for that tidbit 30 years from now.

Trevor Curran
NMLS #40140
0 votes
Madeline Pad…, Agent, Brooklyn, NY
Sun Jun 10, 2012
Hi Mark
If it truly is your dream home now is the time to buy if you can afford those PMI/FHA payments. If not
then now is not the time to buy. Only you can answer that question, but just as Mitchell said
make a list of the pros & Cons and we are sure you will figure out what is best for you.
0 votes
Mitchell Fel…, Agent, Brooklyn, NY
Mon Jan 9, 2012
Dear Mark:

In the end it is a matter of personal preference and nobody can predict how the real estate market will perform in the future. If it were that easy to predict we would all be billionaires! My suggestion would be to put together a Benjamin Franklin list (pros & cons of both ideas) and figure it out. Good luck!

P.S. In my humble opinion I say buy now, simply because we know what is happening in our lives right now. We know if we can afford it right now. As a real estate agent for the past 18 years, I have seldom heard a consumer say "oh, if only we DIDN'T buy this home back then." Usually it is "we are so lucky we purchased our home when we did!" :)

Mitchell S. Feldman
Associate Broker/ Director of Sales
Madison Estates & Properties, Inc.
Office: (718) 645-1665/ Cell: (917) 805-0783
Email: MitchellSFeldman@aol.com
0 votes
Annette Levi…, , New York, NY
Sun Jan 8, 2012
With Federal, state and city taxes (40% tax bracket combined), I don't see how you can save 15% of the purchase price in a year. I would suggest you speak to your accountat on the tax advantage of ownership. With that advise you can best make the decision on what is right for you. Remember none of us have a crystal ball letting us know where mortgage rates and home prices will be in a year.
0 votes
Marge Bennett, Agent, Fort Myers, FL
Sun Jan 8, 2012
Check out PNC Mortgage. I understand they have some programs that might work well for you. By all means, buy now. Can you borrow from you 401K?
0 votes
Martina Ryan, Agent, Bayside, NY
Sun Jan 8, 2012
Now is a good time to invest as prices are at an all time low & interest rates are great, and you found your dream house!
0 votes
Julie Thum, Agent, Brooklyn, NY
Sun Jan 8, 2012
I'm sorry but wanted to add to my answer. It's all a matter of your comfort as far as the down payment. If you see a home you would really like to buy NOW, then you should just do it. If there's no prepayment penalty, you may be able to pay off the mortgage faster. If not, you can always wait until you've accumulated the 20%, but of course by then the prices may also have risen.
0 votes
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