When you dont have 20% to put down on your new home in Charlotte (who does?), there are other options available than the traditional FHA 3.5% down loan. You see, mortgage companies want charge insurance called mortgage insurance to insure that 20% of the loan. This is called a few different names depending on what loan you decided on. FHA calls it a funding fee, VA calls it a PMI (Private Mortgage Insurance), but what ever it is called it is paid by either rolling it into the cost of your mortgage or adding on an additional fee to your mortgage until you have 80% equity in your home.
In this 3 part post, we are going to explore 3 different ways to avoid this extra charge and save you THOUSANDS of dollars. The first one is the one I prefer the most especially with interest rates being so low. Even though you pay a slightly higher interest rate, you can deduct that from your federal taxes where as mortgage insurance is not tax deductable.
Lender Paid Mortgage Insurance (upfront) – Lender pays an upfront fee to the Mortgage insurance company but charges the borrower a higher interest rate (just slightly higher but saves you thousands in the long run.)
- Borrower has NO mortgage insurance payments ever.
- Lender can pay upfront Mortgage Insurance fee at closing. This is done by charging a higher interest rate to increase the “yield point spread” and cover the upfront charge.
- Since the Mortgage Insurance rate charged is based on LTV (loan to value) and credit score, it is impossible to give you a definitive amount of rate change. Rates can range from 0.75% of the loan amount to 4.42% of the loan amount. The higher the down payment and the higher the credit score, the better the no Mortgage Insurance rate.
- Must be a minimum of 5% down payment or 95% LTV for a primary home. A little more than the FHA 3.5% but seller can help with closing costs. Second homes require 10% down payment.
- The higher interest rate is almost always a lesser monthly mortgage payment than a lower interest rate with the monthly MI.
Example- Based on a $200,000. loan amount with a 760+credit score and 5% down payment
Savings of $67.00/month $804 a year $5,628 in 7 years mortgage payments!
- 680 minimum credit score.
- One loan only.
- Must be approved by Mortgage Insurance Company.
Terry Sutts with WR Starkey provided this information. Contact Terry at 704.661.4885 for more info and to see if he can save you THOUSANDS! After your pre-approved be sure to let us find your dream home since now you can buy a bigger home in Charlotte!!
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