Things You'll Need
If VA, Letter of eligibility
Avoiding Mortgage Insurance
Visit your mortgage broker and talk about conventional purchase loan possibilities where private mortgage insurance (PMI) can be avoided. He will explain about a first mortgage of 80 percent of the purchase price, requiring a 20 percent down payment. An 80 percent conventional loan does not require mortgage insurance.
Discuss the possibilities of structuring an 80/10/10 if a full 20% of the purchase price is not in your budget. This requires a 10 percent seller-held (or bank-held) second mortgage, and 10 percent of your own funds for down payment. The conventional loan is an 80 percent loan, and removes the need for mortgage insurance.
Discuss the mechanics of a VA loan with your broker if you have VA eligibility. This is another type of loan that does not require private mortgage insurance. It can be a 100 percent loan, but the VA funding fee is more costly with no down payment. A 5 percent down
payment will reduce this, however, and the funding fee can be paid by the seller at closing.
Consider which avenue of purchase loan you prefer. Consider amount of monthly payments on a first and second mortgage as compared to one higher payment on a 100 percent VA loan, and have broker pre-qualify you for loan approval. Discuss all costs involved, and amount that you will need to provide at closing.
Check your balance and payment history if you have an existing mortgage. If you can prove that your loan is now at 80 percent of the value (an appraisal can be done), you may be able to get the lender to drop off mortgage insurance on a conventional loan, thereby avoiding mortgage insurance payments. If you are currently in an FHA mortgage, you can avoid the monthly MIP (mortgage insurance premium) payment when your loan reaches 78 percent of the original sale price. You must have a pristine payment history for either of these situations to work in your favor.