Ditching PMI – Part 2

Last time we discussed ways of getting the PMI payment out of your life once it is there. Most would agree that it would be better if you didn't have it in your life at all. There are some strategies a new home buyer can look into to eliminate the burden of PMI. They don't always work out, but are worth pursuing.

80,10,10

Many years ago, we were buying a house and only had about 10% to put down. Since we had done business with this representative before we discussed our options. Here is where it is good to work with someone who actually has your interest at heart rather than someone who just wants to sell you a loan. Yes, it is true, not a lenders are pure of heart.

The normal procedure would have to put down the 10% and get a loan for the balance. What our “friend in the business” suggested was two loans: one for 80% with no PMI and a shorter term second at 10%. When we looked at the numbers, it was a no brainer. The second mortgage payment was fairly close to the amount we would have paid for PMI and the payments went toward knocking down the amount owed, rather than giving piece of mind to the banksters somewhere across the country. I've spoken with some lenders and some will do this. Shop around. If you are putting 3% down, I'm pretty sure this approach won't fly.

Seller Carries Second

Depending on the seller's financial situation, some can be induced to take back a portion of the payment. Why would they do this? Now multiple buyers for every property may not be be optimal time for this strategy but in buyers markets, it may help them sell the home more quickly. Also, if they are not needing the funds to buy their next home and have no investment plans, you can give them 25-50 times more than the amost non-existant interest paid by the banks and still get a good deal.

Private Lenders

Since you are not looking for a full term loan, there are many people who have found making private loans are a better investment than the banksters can ever offer. Talk to friends who invest in real estate, many will know of these people, but, they may be hesitant to share the information so their favorite lenders don't run out of money before their project can be funded.

One Caveat

Thanks to Messrs Dodd and Frank protecting the American public, balloon mortgages for your home are now longer legal. The logic for this is that during the Great Depression, many mortgages had lower payments for so many years and then the entire balance came due. People could not get more financing an many lost their homes. This applies to both sellers and private lenders. Regular institutions know not to create such loans.

On the other hand, if you are buying an investment property, it's like the wild west. For the most part, whatever you and the lender can agree to will make the deal work. Just be careful you don't get so excited about the deal that you sign anything just to get it done. Read the paper and if you don't understand it... paying a couple hundred to a real estate attorney can save you thousands.