Mortgage insurance

[Capt Worley PE]

Riddle me this:

Many in trouble now may have started out paying mortgage insuurance because they put less than 20% down on their homes.. Is that not insurance to protect the borrower?? if if its to protect the Lender, should not all these homes then be considered paid off allowing the families to remain in them???

What was mortgage insurance for?

BIG ripoff, or are we being lied to?

 

[Flyer_PE]

^It's insurance for the lender in case they can't recover their costs after foreclosure. In practice, I don't see it as anything more than a penalty imposed for not having an 80% LTV on your home.

 

[roadwreck]

Many of the people who are in trouble now avoided paying mortgage insurance b/c they financed their purchase in a nontraditional fashion. Private Mortgage Insurance (PMI) is usually only imposed on people who do not have 20% to put down, and it is to protect the bank in the event that to borrower defaults on the loan and the house can't bring enough proceeds in foreclosure to cover the loan balance. The 'trick' to avoiding PMI was to take out multiple loans. one for 80% and another for the rest of the balance. This way the borrower could avoid paying PMI, which at the time was not tax deductible, in favor of paying interest on the second loan which was tax deductible.

 

[Road Guy]

IMO its a crock, extra money for the banks.

were going through a home refin right now, were just under the 80% mark and I could tell the lender was really really hoping to get their PMI

 

[Chucktown PE]

RW hit the nail on the head with that. Another caveat to what RW noted is that, in a foreclosure situation the 1st lien holder (the mortgage company) gets paid first, and if there's any left, the 2nd lien holder (the company that holds the HELOC or 2nd mortgage) gets paid, and on and on until anyone who holds a lien on the property get's paid. In a lot of these cases there isn't enough money after the foreclosure to even cover the 1st lien holder, the 2nd gets nothing, etc. Additionally, and I've seen this a lot down here, people that bought houses before the real estate boom and only took out 1 mortgage soon saw that their property was worth a lot more than the balance of their mortgage, so they took out HELOCs and did cash out refinances, also avoiding PMI.

One thing that I haven't been able to ascertain is where all the money went. The economy just didn't seem all that great to me but if you do the math, there were trillions of extra dollars floating around. Did people buy cars with that money, boats, vacations, etc. Where did it all go? I've seen a lot of foreclosures down here where people took $200k out of their house and then go into foreclosure and have no assets left.

 

[MGX]

I know of people who took out helocs to surf credit card and car loan debt to, usually racking up more credit card debt and or buying new cars with bigger payments.

Talk about tightening the noose around your own neck.

 

[tymr]

IMO its a crock, extra money for the banks.
were going through a home refin right now, were just under the 80% mark and I could tell the lender was really really hoping to get their PMI

I agree. We went through a refinance in 2005, and our property appraised for twice the loan value so we weren't required to pay PMI. Our lender worked really hard to try and get us to refinance the maximum amount of the appraised value (80%, I think). I am so glad we still have equity, though not much, instead of being under water.

 

[Road Guy]

^-- yes they still bug us about taking out additional money (the equity) when all I want to do is lower my long term interst money paid by going to a 15 year and I want to keep the loan amount the actual payoff and not add a few grand for ....... crap... of course I would love a new boat, but I wont put myself in that position.

 

[RIP - VTEnviro]

How the hell can anyone afford to put 20% down on a house in the first place. Based on the current assessment of the house I'm renting, I'd need to find a spare $68k between the cushions. I want to buy something when my wife finishes her post-doc work in about a year and a half, and can see no way in hell I could possibly do so until I am in my mid-30s at the earliest. And I'm a total penny pincher!

When did you folks buy your first place?

 

[chaosiscash]

How the hell can anyone afford to put 20% down on a house in the first place. Based on the current assessment of the house I'm renting, I'd need to find a spare $68k between the cushions. I want to buy something when my wife finishes her post-doc work in about a year and a half, and can see no way in hell I could possibly do so until I am in my mid-30s at the earliest. And I'm a total penny pincher!
When did you folks buy your first place?

You also live in Boston (right?). Its one thing to buy a "small, starter home" for around 100k and have the 20k to put down. I could save that up in a year or two if I was renting. Its completely something different to buy a "small, starter home" for 300+k and have the 20%. I bought my first home (in Knoxville, TN) when I was 24, but it only cost around 120k and I lived in an RV for a year and a half saving money for the down payment.

 

[roadwreck]

How the hell can anyone afford to put 20% down on a house in the first place. Based on the current assessment of the house I'm renting, I'd need to find a spare $68k between the cushions. I want to buy something when my wife finishes her post-doc work in about a year and a half, and can see no way in hell I could possibly do so until I am in my mid-30s at the earliest. And I'm a total penny pincher!
When did you folks buy your first place?

you find a cheaper place to live.

 

[Flyer_PE]

You also live in Boston (right?). Its one thing to buy a "small, starter home" for around 100k and have the 20k to put down. I could save that up in a year or two if I was renting. Its completely something different to buy a "small, starter home" for 300+k and have the 20%. I bought my first home (in Knoxville, TN) when I was 24, but it only cost around 120k and I lived in an RV for a year and a half saving money for the down payment.

Same here. My first was half of a duplex for 105k. It's the only one I could pull a 15 year loan on though. Another couple of years and I should be able to pull this one under control though.

 

[snickerd3]

Location location location 68K is almost half the price of my house.

when we bought out first house in 2003 we put a 15K downpayment and the rest was two loans to avoid the PMI. Had the second one paid in a yr and half.

For the new house in 2008 between the money from the first house and 6 months of saving, we were able to put over 30% down so again no PMI

but we live in central IL and the property values aren't as high as on the east coast.

 

[DVINNY]

How the hell can anyone afford to put 20% down on a house in the first place.
When did you folks buy your first place?

I bought my first house when I was 23, I only paid $85,000 for it. But it was a 4 bedroom cape cod style. Not bad for the $$. I bought the house I'm in now, 6+ yrs ago.

you find a cheaper place to live.

^^ Exactly.

 

[Chucktown PE]

Our first house which was in Atlanta was $250k and we put down 10%. My company bought it from us last year and we ended up making around $40k. Now we have a good chunk of change to plunk down on the next house.

Don't get discouraged VT. I think saving 20% for a down payment while living in Boston would be nearly impossible. Plus, as a grad student I'm guessing your wife doesn't make a whole lot of money.

 

[wilheldp_PE]

I'm about to start building my 2nd house. I bought the first one with an 80/20, 0% down loan(s). Both of them were traditional loans (no ARMs for me), and the 1st was a 30 year and the 2nd was a 20 year. I was looking to refinance into 1 mortgage with no PMI since I have some equity built up, but a local builder caught my eye first. He's building Energy Star homes that are in my price range in a much nicer neighborhood than my current one. I am going to have to get 2 mortgages again, but as long as I'm not pissing money away on PMI, I'm fine with that.

 

[Road Guy]

I bought a town house when I was 24, cost was $65,000. We paid PMI but it was only $75 bucks a month

second house we still had to pay PMI, we only put down 10%, but I hated paying the PM

third & current house we put down 5%, and then got a home equity loan to make up the other 15% so we didnt have to pay PMI

in the last 5 years we have paid off the "second loan" so when we refinance to a 15 its really like a 20 year loan, but long term it will still save a ton of money.

But I dont think you have to have 20% to put down, its just that the banks want there PMI when you dont.

 

[Chucktown PE]

I have been mortgage shopping down here as well as house shopping and most banks are requiring 20% down now. The minimum they'll take is 10%, with or without PMI. There is no such thing as 100% financing any more. I'm also looking at contracting a house my self. Financing is a little trickier but I can get a much nicer house for the money.

 

[Road Guy]

you know I dont necessarily think that making people put something down is a bad idea though, 100% financing is probably what got a lot of people into trouble.

Used to be banks wouldnt even talk to you unless you had 20% (or so thats what my dad and father in law say)

Our lender, Chase, said there is a FHA 15 year loan that will do no PMI if you have 10% down. (I am sure credit score impacts this though)

 

[RIP - VTEnviro]

Yeah the market price on my place was $340k when we moved in last Memorial Day. And that number was devaluled based on what the owner expected to sell it for.

We've got 1600 SF on 0.25 acres. It was built in the 50s but has been modernized over time (kitchen, bathrooms, fixtures, etc.) and shows pride of ownership. For $2000 a month, I'm getting a pretty fair deal I think given what else we looked at.

The owner bought the place a few years back and then deciced to move into a bigger place on a quieter street. He didn't want to sell it for a loss, but the rent was high enough where most people that could afford that would just buy something. We didn't want to buy anything here because my wife's post-doc appointment is ~2-3 years and it didn't make sense to buy anything anyway.

We make decent money and since we moved here we've bought a lot of nice hardwood furniture, two new computers, and are pre-paying a big vacation this summer all in cash. So I haven't spent any money but haven't saved any either. The furniture was just stuff we need that will last 20 years, and the vacation is the honeymoon we never took. Once that's all set I'm sure we will be saving a good chunk each month. And once Dr. Mrs. graduates her salary will basically double again. So I can see myself being in that boat at some point. And our credit is good and we have no CC bills so that helps too.

It's just frustrating because that's basically that one 'adult' thing that I haven't accomplished that I would like to do, and it bums me out a little when I see friends and coworkers younger and who are making less buying stuff. I'm happy for them, but it makes me feel like I screwed up somewhere I guess.

I have been mortgage shopping down here as well as house shopping and most banks are requiring 20% down now. The minimum they'll take is 10%, with or without PMI. There is no such thing as 100% financing any more.

I think that is a good thing because there are a lot of people who bought something they can't afford when mortgages were just handed out and are way over stretched with their financial resources at this point.