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10% Down NO PMI

Low Maintenance Solution

No PMI with 10% down

The “Low Maintenance” solution to mortgage planning

A lot of loan officers shy away from complex ways to truly give a client the benefit of better terms for the long haul.  Setting up a home loan for someone is an art and looking at a Client’s long terms goals and strategy is taking the colors given and working to make something perfect.  We recently did this and it was awesome!

The Second Mortgage

Purchase money second mortgages are making financing terms attractive for prospective homeowners that are generating great income but do not have all the cash for a 20% down payment.  Borrowers want a lower monthly payment without the private mortgage insurance (PMI – more on this topic coming soon!).

Usually the solution, from the lender, is to “refinance later” which comes with a cost.  What about a borrower having 10% for the down payment?  This is how a purchase money second can help you save monthly upfront and for the future.

The Details

Guidelines require a combined loan-to-value (CLTV) of 90% – 95% for a Home Equity Line of Credit (HELOC) that will give you the additional funds for the remaining down payment.  The borrower must have at least a 10% down payment on the purchase price of the home.  See the scenario below:

Both scenarios based on 740 FICOs as of 6/12/2018, includes PMI factor

Combined First & Second Mortgage

Purchase Price: $500,000

Borrower Down Payment 10%: $50,000

Purchase Money Second Loan 10%: $50,000

First Mortgage Loan Amount: $400,000

Rate 5.25%

First Mortgage Payment PITI: $2,631.31

Second Mortgage Payment: $319.39

Total Housing Expense: $2,950.70

Scenario 10% down ONLY

Purchase Price: $500,000

Borrower Down Payment 10%: $50,000

First Mortgage Loan Amount: $450,000

Monthly PMI $138.75

Rate: 5.00%

First Mortgage Payment PITI & PMI: $2,990.70

Results

Notice how the payment is virtually the same putting 10% down and using the purchase money second mortgage option compared to paying monthly PMI.  Remember, the additional down is lowering the monthly principle and interest on the first mortgage making the payment lower, despite a slightly higher interest rate.  In addition, once the PMI drops off at 78% LTV, per the Homeowner’s Protection Act, the mortgage payment, putting 10% ONLY down, drops $138.75.  When the second mortgage is paid off using the first and second HELOC option, the payment drops $319.39.

This set up is designed for the homeowner that wants flexibility to control their housing expenses by paying additional towards the principle and reducing their monthly expenses rather than wait for equity to refinance down the road.  Remember, there is a cost to refinance your home loan, no matter how great the deal is.  This solution is what I consider a “Low Maintenance” mortgage loan.

Updates

The rates and costs described are meant to illustrate the differences and savings in payments even if an interest rate was higher for the First and Second Mortgage option.  It does not represent the current market rates and will vary based on the borrower’s qualifying factors.  This blog post was published after it’s original disclosure date.

Disclosures
*Interest rates and annual percentage rates (APRs) are based on current market rates 06/12/2018, are for informational purposes only, are subject to change without notice and may be subject to pricing add-ons related to property type, loan amount, loan-to-value, credit score and other variables—call for details. Rate data is for illustrative purposes only.  Subject to underwriting approval. Application required: not all applicants will be approved. This is not a credit decision or a commitment to lend. Additional loan programs may be available.
First Scenario with Second Mortgage Principal and interest monthly payment estimates (30 fixed): 359 payments of $2,208.81, and 1 payment of $2,212.86 Second mortgage Principle and interest payment estimates (10-year interest only, 20 year fixed, 30 year amortization) 359 payments of $276.10 and 1 payment of $277.94. 
Second Scenario 10% down only Principal and interest monthly payment estimates (30 fixed): 359 payments of $2415.70, and 1 payment of $2,413.59.
Payment estimates do include amounts for taxes or insurance and assumes mortgage insurance is required for the loan (10% down ONLY scenario), your actual payment obligation could be greater. If an escrow account is required or requested to cover any of these items, the monthly payment amount will increase. APR reflects the effective cost of your loan on a yearly basis, taking into account such items as interest, most closing costs, discount points (also referred to as “points”) and loan-origination fees. One point is 1% of the mortgage amount (e.g., $1,000 on a $100,000 loan). Your monthly payment is not based on APR, but instead on the interest rate on your Note.
These rates also assume the following: 1) Property type/use: Single family residence/owner occupied; 2) Loan-to-value (LTV): 90%, or as user selected. LTV = ratio of loan amount divided by the purchase price; 3) Down payment: 10%; 4) Rate lock period 30 days; 5) Base Loan amount: $400,000 & $450,000; 6) Discount point (s): 0 ; 7) Lien position: First lien; Property location: Arizona; Loan term: 30 year fixed product Conventional.

Chris Gonzalez
(480) 442-4494
info@azmortgageprofessional.com
www.azmortgageprofessional.com

 

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