Real Estate Home Mortgages/PMI
Hi Mr. Forster: My wife and I are purchasing a fix-up home for $175,000. It needs about $50,000 in repairs. The mortage broker we spoke to got our loan pre-approved. But she told us that because it needed so much work, it did not qualify for a conventional loan, we would have to pay PMI even though we are putting down 20% cash as a down payment. Moreover, she told us that the PMI payment must be paid as a single payment premium upfront at closing, which comes to around $3000- in addition to other closing costs. She insists that it is a requirement for getting the loan. I always thought that at 20% equity, the PMI is no longer required, so her proposal doesn't seem right. If we do pay this PMI ufront fee, would it be prorated if we paid off the 30-year-mortage in a year or two and thus be refunded the unused portion of the 30 year term? What are your thoughts on this? thank you
The purchase transaction you are in is described in the mortgage industry as "non-conforming", due to the large amount required for necessary repairs. That means that you cannot get a "conforming" loan and be free of the PMI requirements; instead, you have to comply with the non-conforming lender's requirements, and they include a single-premium PMI.
The single-premium PMI has been a standard requirement for FHA loans for decades; now more and more lenders require it on non-FHA mortgages. In your case, despite the 20% down payment, your lender sees the $50,000 in repairs as an excessive risk, hence the PMI requirement. Had the condition of the property been better, the lender would have considered your $35,000 down payment as an adequate cushion to mitigate any potential loan risks. With so much in necessary repairs, the cushion is simply not there.
All the best with your purchase,
About Real Estate Home Mortgages
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