There is a direct relationship between the first and second mortgage strategy, and PMI. Here’s the short version: By combining two home loans, borrowers can finance a larger purchase without having a loan-to-value (LTV) ratio that exceeds 80%, thus avoiding the "trigger" that requires private mortgage insurance. The cost of PMI varies.
With a second mortgage loan, you get to finance the home 100 percent, but neither lender is financing more than 80 percent, cutting out the need for private mortgage insurance. Making the Choice There are many advantages to choosing a second mortgage loan rather than paying PMI, but the ultimate choice depends on your personal financial circumstances, including your credit score and the value of the home.
Another way to avoid PMI is to use a second mortgage. The first mortgage must be capped at 80 percent of the home’s value to avoid PMI, and a second mortgage will usually allow for another 10percent financing on top of this, for a total of 90 percent financing.
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Private mortgage insurance is likely to be required on mortgages with an LTV ratio greater than 80%. Avoiding PMI can cut down on your monthly payments and make your home more affordable.
First-Time Buyers: How Much Down Payment Do You Really Need These Days? – With FHA loans, PMI lasts for the lifetime of the loan. "Anyone with decent credit can get a loan," Fleming says. "The limiting factor will always be the PMI." If you have a choice, should you make a.
How Much House Can I Afford? – Second, the size of your down payment can affect your monthly mortgage payment. For down payments of less. Ideally, buyers should aim to make a down payment of 20 percent or more to avoid PMI..
The first and second mortgage combination helps the buyer to avoid private mortgage insurance (PMI) because the lender considers it a 20% down loan. PMI is required for most conventional loans with less than a 20% down. Therein lies the PMI loophole. Lenders "count" the second mortgage as part of your down payment.
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You may be able to avoid PMI insurance by taking out a second loan for the additional amount you need to borrow. This is a form of creative financing. Your loan amounts will be 80/20 or 80/15/5, with the five being a down payment that you saved up yourself.
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