Author Topic: Your thoughts solicited: PMI Situation  (Read 891 times)

Cwadda

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Your thoughts solicited: PMI Situation
« on: March 13, 2017, 03:08:01 PM »
I'm purchasing a 4-family apartment building using an FHA loan 3.5% down (living in one of the units for 1 year). I need to know whether it makes sense to aggressively pay down principal, or to save up that cash to buy another house next year. Here are the details.

Purchase price: $360k, 3.5% down
30 year fixed
Interest rate: 4.15%
PMI: 1.15%
Principal + interest: $1689/month
PMI: ~$333/month
PITI: $2800/month
Combined rents from 3 other units: $3150/month

Essentially in this scenario there is a cashflow of $0, but I am also living-rent free. When I move out and the 4th apartment is rented, the cashflow becomes $1100/month. Should I aggressively pay down on principal right away in order to get 20% equity as fast as possible and refinance? I want to buy another single family or condo next year. Could it make sense to save up the extra cash towards another house next year (20% down, no PMI)?

Thank you.

Enough

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Re: Your thoughts solicited: PMI Situation
« Reply #1 on: March 13, 2017, 03:25:07 PM »
I am not a fan of PMI, but in your situation, I think it makes sense to save up your cash for another investment rather than paying down the mortgage if you live in an area that has opportunities for such investments.  I lean that way because if you refinance after your paydown to eliminate the PMI, your likely going to end up with at a higher rate after the refinance due to (1) higher interest rates from the fed (2) you likely wont be an owner occupant when you refinance.  If it turns out that you can refinance to get rid of PMI and still get a good rate, you can always make a lump sum payment at that time with the cash you've saved.

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #2 on: March 13, 2017, 03:29:36 PM »
Quote
If it turns out that you can refinance to get rid of PMI and still get a good rate, you can always make a lump sum payment at that time with the cash you've saved.
I don't know why I didn't consider this angle at all, but now that you've brought it up it seems to make all the sense in the world. Save up the cash, and if I don't get something, just make a lump payment. Tyvm.

AMandM

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Re: Your thoughts solicited: PMI Situation
« Reply #3 on: March 13, 2017, 06:10:37 PM »
Do the terms of your mortgage require you to refinance anyway once you move out and the property is no longer owner-occupied?

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #4 on: March 13, 2017, 07:44:35 PM »
Do the terms of your mortgage require you to refinance anyway once you move out and the property is no longer owner-occupied?

I'll double check, but I don't think this is the case. PMI stays for the life of the loan, that's why I'd like to get a refinance sooner than later.

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #5 on: March 14, 2017, 08:44:06 AM »
Any other opinions? I'm really on board with Enough's idea but I want to consider other angles, if any.

Scortius

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Re: Your thoughts solicited: PMI Situation
« Reply #6 on: March 14, 2017, 10:16:22 AM »
Are there any other forms of early pay-off penalties?

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #7 on: March 14, 2017, 12:46:36 PM »
Are there any other forms of early pay-off penalties?

I don't believe so, it's just a regular FHA 30 year loan. I know that you can't refinance until at least 1 year later though.

Enough

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Re: Your thoughts solicited: PMI Situation
« Reply #8 on: March 14, 2017, 02:39:37 PM »
Another thought: In a year, when you go to refinance you will have to get the property reappraised.  If you complete any significant maintenance / repairs, or if you got it at a good price, or if you're in a market that is appreciating quickly, (or some combination of the three) there's a chance the value could go up enough over the next year to refinance and have 20% equity without additional mortgage payments.
« Last Edit: March 15, 2017, 07:10:56 AM by Enough »

Hargrove

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Re: Your thoughts solicited: PMI Situation
« Reply #9 on: March 14, 2017, 06:46:49 PM »
PMI is the life of the loan?

I thought lenders were required to quit your PMI after you hit 22% equity, and you can request it at 20%. Is this something weird about FHA loans?

I'm planning to buy a condo eventually at 25% for the best rates and no PMI. I gather it would be wiser to become a landlord like you did, and I'm just not sure I want to manage tenants.

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #10 on: March 15, 2017, 07:09:32 AM »
PMI is the life of the loan?

I thought lenders were required to quit your PMI after you hit 22% equity, and you can request it at 20%. Is this something weird about FHA loans?

I'm planning to buy a condo eventually at 25% for the best rates and no PMI. I gather it would be wiser to become a landlord like you did, and I'm just not sure I want to manage tenants.

Yes, this is something funny with FHA loans. For conventional it is as you say.

Cwadda

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Re: Your thoughts solicited: PMI Situation
« Reply #11 on: March 15, 2017, 07:12:33 AM »
Another thought: In a year, when you go to refinance you will have to get the property reappraised.  If you complete any significant maintenance / repairs, or if you got it at a good price, or if you're in a market that is appreciating quickly, (or some combination of the three) there's a chance the value could go up enough over the next year to refinance and have 20% equity without additional mortgage payments.
Good point, although I'm not really getting a good deal on it. A lot of the work has been done. If it was in disrepair, I'd have trouble securing an FHA loan without using a 203k. After repairs, the value could go up slightly, but I don't think it'll be enough to cover the 20% equity.