I have cash. Where does it go?

SrFnFly227 said:
If you're truly set on avoiding a PMI payment, there are a few options that will get you there.

The first is to put down enough money to not have one. This is the simplest in terms of the process, but most people of our generation have a problem getting anywhere near enough money to put down that large of a down payment. And as Todd has mentioned, it may not be the smart play over time anyway.

The second is what my wife and I did while buying our house 2 years ago. Our "PMI" is built in to our interest rate at something like an eighth of a percent. This is called Lender Paid PMI. The downside to this is that we will pay it for the life of the loan. The advantage is that because it is not differentiated from standard mortgage interest, it becomes a tax right off at the end of the year. Standard PMI can not be written off on your taxes once you hit a certain income. Our long term plan when we bought was to stay in this house for 5-10 years and then move up. At that time frame, we save money over a standard PMI. It should also be noted however, that both my wife and I both hover around an 800 credit score. We also bought in July 2013 and our combined rate is 3.75%.

The third option was what we had originally planned to go for, before deciding on the Lender Paid PMI. You take out 2 mortgages. I don't remember the exact numbers, but for sake of explaining, I'll estimate them from memory. The first mortgage is your primary and works just like any other 30 year mortgage. It is for 80% of the loan value. The second mortgage is for 10 or 15% of the loan value. The second one will be at a higher interest rate and will be for a shorter term than the primary loan. You put down the other 5 or 10%.

Both the Lender Paid PMI and 2 mortgage options saved us money over paying a conventional PMI. That may not be true if you plan to hold on to your property for longer than 10 years though. Ask who ever is doing your mortgage to put together numbers for all of the options and see what works best for your situation.
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The two mortgage thing is interesting, I'll have to look at that.
I found a really great property that's HUD owned, which I hear can be a pain in the arse to buy. Anyone have experience with these?
 
bimmerphile said:
The two mortgage thing is interesting, I'll have to look at that.
I found a really great property that's HUD owned, which I hear can be a pain in the arse to buy. Anyone have experience with these?
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They are like all other real estate transactions. They can either be real easy or a huge pain in the ass. It really depends on the buyer as well and their knowledge of the potential problems they can be getting themselves in to. Most of the HUD homes go in and out of inspection monthly when the buyers get scared off or can't afford the fixes.
 
First time home buyer here. My mortgage lender hooked me up with a no PMI loan with 5% down, 4% interest rate. They do exist.
 
Nope. Conventional loan. She said it was a newer program and I qualified because of my credit score. ~760. This was ~3 months ago. Rates are up a bit now.

Instead of getting ~3.85% and ~$75 PMI, I took 4% and no PMI. I ran the numbers and the break-even point was ways out there.
 
PGT said:
Nope. Conventional loan. She said it was a newer program and I qualified because of my credit score. ~760. This was ~3 months ago. Rates are up a bit now.

Instead of getting ~3.85% and ~$75 PMI, I took 4% and no PMI. I ran the numbers and the break-even point was ways out there.
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That's awesome. Definitely got to do some hunting.
 
PGT said:
Nope. Conventional loan. She said it was a newer program and I qualified because of my credit score. ~760. This was ~3 months ago. Rates are up a bit now.

Instead of getting ~3.85% and ~$75 PMI, I took 4% and no PMI. I ran the numbers and the break-even point was ways out there.
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My initial thought is that she lied to you, but it may have just been a misunderstanding. What you describe is known as lender paid PMI. They adjust your interest rate up and take on the PMI themselves. Advantage to you is that as far as the IRS is concerned, it is all mortgage interest. Advantage to them is that they make that extra interest for the entire life of the loan, rather than losing the PMI when you hit 80/20 loan to value.
 
PGT said:
Nope. Conventional loan. She said it was a newer program and I qualified because of my credit score. ~760. This was ~3 months ago. Rates are up a bit now.

Instead of getting ~3.85% and ~$75 PMI, I took 4% and no PMI. I ran the numbers and the break-even point was ways out there.
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It's a shell game. Instead of 3.85% they are making their money on you paying 4%. You're still paying PMI and you fell for it.
 
Cessnaflyer said:
It's a shell game. Instead of 3.85% they are making their money on you paying 4%. You're still paying PMI and you fell for it.
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You missed the part where he ran the numbers and he made out better this way.
 
bimmerphile said:
I'm nearly halfway through my twenties, and looking for a place to put some cash I've saved up. It looks stupid just sitting in a savings account earning almost no interest.
No debt, and about to finish college, so my expenses are pretty much nil. My cars are paid for, and I don't have any rent because I'm on the road 10 months out of the year (survey life) and just keep my larger possessions at my parents' place.
I can only put a little more in my Roth IRA this year, and have a few grand in a Robinhood account so I can trade (more of a hobby than a serious investment).
I've considered purchasing a duplex, and having my younger brother manage the property for me while I'm away, but I don't really know much about investment properties and the mortgages that go with them.
Basically, if you had between 10 and 15k in cash at my age, what would you do with it?
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ATN_Pilot said:
You missed the part where he ran the numbers and he made out better this way.
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I'd like to see the actual numbers because 3.85% and 4% with a $350,000 house with 5% down is $1558.79 and $1587.41 respectively. With all the closing worksheets I've been through he'll be paying nearly the same thing as regular PMI for the first ~5 years of the loan. The only plus of this is if you are going to be selling your house within the 5 years. During that time he will only save a few bucks early in the loan. The longer he keeps the loan the more money the bank will be making on him. Rarely do people beat the bank at their own game.
 
Cessnaflyer said:
I'd like to see the actual numbers because 3.85% and 4% with a $350,000 house with 5% down is $1558.79 and $1587.41 respectively. With all the closing worksheets I've been through he'll be paying nearly the same thing as regular PMI for the first ~5 years of the loan. The only plus of this is if you are going to be selling your house within the 5 years. During that time he will only save a few bucks early in the loan. The longer he keeps the loan the more money the bank will be making on him. Rarely do people beat the bank at their own game.
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I'm just wondering if this is possible on some of the FHA mortgages I mentioned earlier. Would be better to write it off as interest, since you have to pay PMI for the life of the loan anyway
 
bimmerphile said:
I'm just wondering if this is possible on some of the FHA mortgages I mentioned earlier. Would be better to write it off as interest, since you have to pay PMI for the life of the loan anyway
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Would you qualify for a conventional with 5% down?
 
Cessnaflyer said:
Would you qualify for a conventional with 5% down?
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I've only been exploring options that have some kind of construction loan/cash for renovations, looking for a fixer upper instead of turnkey. Not sure what the best option would be with a limited cash investment
 
So this is what the ol' credit union quoted me for a property I've had my eye on. The APR on the lender paid PMI is lower than borrower paid...?
I also had no idea closing fees were this high. May be a little longer before I buy...
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Those closing fees are pretty high and points suck because you are paying interest you may never have to pay if you sell or pay off early. Are those only closing fees without closing costs from escrow or title?

I'll have to check my HUD-1 for all my closing costs and give you an update.
 
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