what about PMI
private mortgage insurance
Private Mortgage Insurance (PMI) will be required for all home buyers who do not have at least 20% or more down payment for the home purchase. PMI adds to the cost of your mortgage payment.
Lenders will make loans at lower down payments provided that the home buyer gets Private Mortgage Insurance (PMI).
When Does PMI Stop?
If the value of your home increases due to the neighborhood or home improvements, or if you make enough payments on your mortgage to reduce your balance to 80% of the appraised value, does PMI go away?
you can cancel your PMI when the lender can be assured that the appraised value of the home has met the 80% threshold.
you must initiate the cancel order the lender will not do it for you unless:
- you purchased your home after July 29, 1999
- you reach 22% of the original property value
in which case the lender must automatically terminate PMI: see the FTC site for information
About Piggy-Back Loans
Piggyback loans is where the lender stacks a second mortgage loan on top of the first mortgage loan. The second mortgage is made at the borrowed amount that brings the down payment percentage to 20%.
The most common piggyback loan is the 80/10/10
80% 1st Mortgage / 10% down / 10% 2nd Mortgage
the purchase price of the home is $100,000.
The buyer only has $10,000 for the down payment. The lender will then underwrite a second loan for $10,000 to bring the required down payment percentage to 20%.
In other words, they have stacked (or piggybacked) one loan onto another.
The interest rate on the second mortgage loan is generally higher than the first mortgage. But unlike PMI, which cost is not tax-deductible, the interest charges on your second mortgage qualifies to be deducted from your taxes.
- calculate your LTV percentage
use this calculation to estimate your LTV percentage and how much down payment you need to avoid PMI