My wife and I bought a small house (1260 sq ft) in a Chicago suburb about 3 years ago. We paid $221,000 for it and only put 3% down so we got an FHA loan where we had to pay for PMI. We were not very aware of what this meant, really, but were just excited to get a new home. We both had good credit and I think our loan was 5.25% at the time.
About 3 months ago we refinanced for $209,000 @ 3.25%. This brought our payments down about $200/month which was nice, but we're still carrying that PMI. We pay about $215 / month in PMI. OUCH.
We owe about $207,000 on our house. The house is currently worth about $210. I read that there are (2) ways to get rid of PMI on an FHA loan:
1) Get house appraised - if we have 20% equity in the house then the bank drops PMI
2) Pay off 22% of the loan, AND have the loan for at least 5 years.
Option 1 isn't happening right away becaues the house value seems to be right at 210k we think.
Option 2 is doable, but 5 years, really? In 5 years we will have paid $13,000 just in insurance. That's pretty rough.
What's our best option here? Here is some information..
My wife and I are both 29 yr old.
My Salary: $50,000 before deductions
Wife Salary: ~$90,000-100,000 before taxes. She gets $80k plus commisions/bonuses which vary a lot.
401k (Both employers match up to 4%, currently putting 10% each)
Hers - $21,000
Mine - $15000
Roth IRA (opened these yesterday)
Hers - $5000
Mine - $5000
Cash in Savings = $20,000
No credit card debt, no student loans, no car loans
I realize our retirement accounts are probably lacking for our age at the moment. We both started college late but are doing well now.
I'm wondering what we should do with our surplus money.. Do we max the Roth IRA every year, max 401k contributions, may down our mortgage as much as possible right now? What's the smartest thing to do with our money right now? This PMI hurts my heart.
Everything else seems to be in order.. We dont go out to eat much, no expensive hobbies, no large amount of shopping, good income, high MPG car (mine is a $5000 honda insight that gets 60mpg on my daily commute!) etc.
Let me know what you think we should focus our money on.