Quote:
Originally Posted by Number 3
Didn't see it mentioned, but if you don't put 20% down, be prepared to pay PMI. Basically insurance that the bank won't lose if you default.
If you do put 20% down you can handle your own escrow. If you don't, be prepared to give the bank 13 months of your homeowners insurance and property taxes at closing and then also you will have to pay 1 months worth of taxes and homeowners insurance with your monthly mortgage payment AND PMI.
Not sure if this is nationwide, but has always been what they do in Michigan.
So 20% down, IMO, adds a lot of flexability.
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The reason for this is that the bank wants an "insurance policy" in place in case you default on your loan. The PMI (or private mortgage insurance) is what the bank require be in place if your loan amount is more than 80% of the purchase price. The factor varies based on the money you put down but you could range anywhere from 6% of your monthly payment (which could be as little as $25 monthly) to as much as 81% monthly (closer to $100+ monthly.)
Yeah this figure sucks when you consider its just a fee you pay the bank for giving you the loan and you get zero return from it, however if you really want to buy a house and reap the rewards of home ownership but don't have the 20% to put down to avoid PMI its a small price to pay in the bigger picture. Plus the PMI factor can be removed once your loan balance reaches 78% of the property value so if you are in an area where property values are increasing, hypothetically you can get an appraisal is 3 or so years, and if your appraised value warrants the 78% you can submit the appraisal to your lender and request the PMI be dropped. It happens alot more than the average person thinks it does.
Escrows are required if your loan amount is more than 80% of the purchase price. The reason 13+ months are collected at closing is because most states require insurance and taxes be paid a year in advance so the lender needs to ensure the funds are in place to pay the bill when it is due (which the insurance is a year upfront at closing and taxes are a set month per each state.) There again, the reason for this is so you do not default on these bills, which can result in a county or state lien against your property which takes priority over the lender meaning the lender loses first place for their security for which they gave you a loan.
You may not care about any of this, but I find knowing why something is the way it is, helps me understand more in why things are the way they are.
Kapeesh?