Posted by Dawn Griffin
Goodbye PMI…How to Avoid Mortgage Insurance with Just 5% Down
Guest Post by Sean Zalmanoff with USA Mortgage
Single Premium Mortgage Insurance allows you to buy a home with just 5% down and get rid of paying dreaded Mortgage Insurance forever.
Let’s look at an example of a recent purchase that Dawn and I helped some clients with and then we will dissect it. The purchase price of the home was $300,000. The clients were required to have a 5% down payment making their loan amount $285,000. The principal and interest payment on the loan was $1508. The taxes and insurance totaled $308 per month for a total PITI (principle, interest, taxes, insurance) of $1816. Because they were using a down payment of less than 20% they are required to pay mortgage insurance. The only question was how were they going to pay it. They had the option of paying it monthly at $137.75 per month or buying it out for $4018. Monthly Mortgage Insurance automatically drops off after about 10 years, when you are putting down 5%, so you can see that paying the single premium would equate to paying it for just over 29 month, which is a huge savings of over $12,300 versus paying the monthly mortgage insurance for 3 years. In this particular case, the clients chose to pay the upfront premium. However instead of using their own funds, the buyers negotiated a credit from the sellers in the contract to pay for the up-front mortgage insurance premium along with closing costs. These particular clients bought a $300,000 home with only 5% down payment and ultimately got their monthly payments down to $1816.00
