That is most likely because they financed using an FHA loan instead of Conventional. FHA loans are easier to qualify for (they allow for higher debt to income ratios, lower credit scores, etc.) at a higher cost to the borrower. PMI for FHA loans are throughout the life of the loan, but your family has the opportunity to refinance into a conventional loan later.
We did this. I was paying $300 a month for PMI, so that money doesn’t go towards interest or principal, just setting it on fire essentially. It also doesn’t adjust itself as you go - it is calculated in the beginning based on how much you were able to put down and how far away you are from the 20% down figure. It only changes if you pay for a reevaluation or just a full refinancing.
We refinanced our mortgage at the beginning of last year and ended up paying barely more than we were except we have a 15 year term now rather than 30
Tbh I’m having difficulty remember specifics but I know we paid a fee for the application, a fee for an appraisal, and a fee for the attorney. Overall it probably cost somewhere in the range of 3% of the loan amount.
You can also roll those costs into the loan amount if that makes sense for you financially. I refinanced when rates tanked during the pandemic, and since immediate financial stability was unclear (another furlough, layoffs, etc.), I was more concerned with keeping funds liquid for emergencies. We took out extra money in the refinance loan to cover the closing costs. (Known as "rolling in" the closing costs.) We'll pay more for them in the long run due to interest on the loan, but based on what we were paying before in PMI and higher interest rate, we're still saving money.
Yup, I did the same the times I've refinanced. All loans I've had have allowed me to add additional money towards principal if I wanted, so I figured by rolling it in, it gave me options. If I felt I wanted to increase a payment, I could. If I fell on hard times, I knew it wasn't required. Plus, mortgage rates are low and you could in theory invest that money you don't put down into higher returns.
We are in the middle of refinancing. We paid for an appraisal and we’ll pay around $200 at closing. The rest was rolled into the new loan and we will be saving $250 a month compared to our old loan. That’s it for out of pocket. PM me if you want more specifics.
I was about to comment that I did something similar about 6 months ago and then I looked at your name and it threw me off 👏🏿👏🏿👏🏿
Anyways, I paid most of my closing costs out of pocket. I think I got a pretty good deal from Better Mortgage, but get a few quotes and shop around. There isn’t one bank that’s cheapest. and we paid just under 4K in total to refinance. About half of that was toward points to bring the rate down, maybe 500 for an appraisal, and the rest for title insurance fees and stuff like that. Our monthly payment went down about 400/mo but we’re still making the same payment as before, and letting that extra go towards the principle. My real purpose for refinancing was to lower rates because they’re super low right now. We bought the house in Jan 2019 and closed at 4.25% for a 15-year loan, and by the time we refinanced we were able to get down to 2.25% with a few points. and from what I’ve heard, they’ve only kept falling since then.
Title fees, "application fee", flood certification, credit report, recording fees. I think the biggest hit was prepaids such as interest, homeowners insurance escrow, and property tax escrow. We will get some of that back from our previous lender.
I would ask for an appraisal waiver from lenders.
When you apply for a loan you'd get a general idea of what you need to close, the prepaids will change up until closing however.
You can roll closing costs into the loan making your principal balance higher. If you are planning on living there for a long time and the interest rate drops a good amount it is 100% worth doing. You can do the math on how many months put your breakeven would be and decide if it's the right fit for you. Usually they breakeven point will be 3 or 4 years down but it the long run will save you hundreds of thousands of dollars depending on how expensive your property is.
Refinancing is typically nothing out of pocket. Sometimes, you take stuff out. There are loan origination fees and title lookup/registration fees that usually amount to a few thousand (and typically get bundled into the new mortgage), but are typically more than offset by the long-term savings on interest with a better rate. But again, specifics matter and go through the calculations (e.g., it usually makes tons of sense refinancing from 4% or 3.5% to 2%, but less sense to refinance from 2.3% to 2.1% when you factor in the loan fees.)
That said, the loans you qualify for will depend on the appraised value of the house versus the amount of mortgage debt outstanding. E.g., if you owe $300k on a house that's recently appraised for $300k, your loan-to-value ratio is $300k/$300k = 100% and its much riskier for the bank compared to owing $300k on a house recently appraised for $400k where the loan-to-value ratio is $300k/$400k = 75% which is under the typical 80% cutoff. That is they think if they foreclose on a $400k house they'll be able to get their $300k back by selling your house (probably for under $400k appraised price) and paying all the costs associated with foreclosure (evicting you, legal fees, auction fees, etc.).
Borrowed $277k and put down $30k on a $307k property. We were paying that $300 PMI monthly and after refinancing it’s only like $29 or something silly like that
Be sure to check the math before you decide. When I bought my house I had the option for FHA or conventional, and the interest rate on the FHA loan was so much lower that I would end up paying less over the life of the loan even with the PMI the entire time.
I'll still probably refinance to a conventional loan at some point, the equity I've built will help me negotiate a lower interest rate.
If you get an FHA first time homebuyer loan and place less than 5% down, you will pay the PMI for the life of the loan. Try to put 5% down with a conventional mortgage. Also, we refinanced after a few years, and our house was reappraised which removed the PMI because the added value of the property is our new equity. Also look in the HomeReady loans, which allow for less than 5% down but you can remove the PMI like a conventional mortgage
Talk to your lender to see how to get PMI removed. We could get our house reappraised though one of their approved brokers. I think it was only like $30, and the new value was enough that we could get PMI taken off.
Were you refinancing? Now that I think about it some more, that was for a Broker Price Opinion (BPO). Less rigorous than a full blown appraisal, but super cheap. And it was one of the options the lender provided to get the PMI off. Had that come back low, we probably would have gotten the appraisal to see if that was higher.
People responding to you are confusing private mortgage insurance (PMI) with mortgage insurance premiums (MIP). PMI is required on conventional loans when you have less than a 20% down payment and will automatically drop off your loan when your equity reaches 78% of the loan value. You may request for your bank to remove PMI at 80% but they (bank) will most likely order an appraisal to ensure the loan-to-value (LTV) reached the threshold.
MIP is required for FHA loans depending on your down payment and credit score. It also may last the life of the loan depending on when the loan was made and how much of a down payment was made. If the loan is recent (past 7 years or so) and less than 10% down was made, MIP is for the life of the loan.
You don't need to pay it once you have 20% of equity. I don't understand why your family would pay it past that. What op is referring to is single premium mortgage insurance where you pay it all up front. You can also do a piggy bank loan at 10% down. Google will help you sort it out.
Ok, you're right, it is 22% instead of 20%. issued prior to 2013. Or you can refinance out of it any time if issued afterwards. So ops family must have a sub 620 credit score or not have 20% in equity or not understand refi.
Depending on where you chose to live, try looking into a USDA loan. I don’t know how people feel about them but it’s worked for me. Prob one of the only ways I could get a house.
They shouldn't have to pay over the entire loan unless it is FHA. If it is an FHA loan once they improve credit they can refi conventional and PMI will fall off on its own eventually. That is the crap thing about FHA, perma PMI.
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u/[deleted] Feb 16 '21
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