Are Mortgage lenders “required” to charge PMI for loan balances exceeding 80%, or is it negotiable?

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I will need to borrow 87% of the appraised value. My credit score is in the high 800s. Do I have any bargaining power?

4 Comments
  1. Reply
    Discovery
    April 29, 2011 at 10:31 pm

    Contact the FSA to find out what is legal and what is required.

  2. Reply
    wizjp
    April 29, 2011 at 11:23 pm

    no. It’s required.

  3. Reply
    Steven M
    April 30, 2011 at 12:01 am

    You can get around it by doing a first and second mortgage, that’s what I did. The second mortgage would be 20% of the home value, so there’s no PMI on the main mortgage. They’ll give you a bit of a higher rate on the second, but you can pay it down faster. Besides, if you make extra payments on the second, it will soon go away and your total monthly mortgage payments will be lower for the remainder of the loan.

  4. Reply
    mte
    April 30, 2011 at 12:41 am

    Yes, you do have bargaining power. You may have to pay a slightly higher interest rate, but you can negotiate the PMI. Since you have a very high credit score, you can use this to your advantage. Assuming you have had credit for more than 5 years and this is your 2nd home or major finance purchase, you should be able to get it taken off or at least lowered. The lower your home purchase price, the better chance you have as well. The banks see this as a better loss ratio for their purposes. So let’s say you wanted to buy a $ 500000 home and you don’t want PMI with your specified credentials vs. buying a home at $ 150000 w/o PMI, the bank is more likely to “take a chance” on the lower purchase priced home than the $ 500K priced home. If you were to default on this $ 500K home, then they would take a much higher loss (in theory). That’s what PMI protects. Unfortunately, PMI does not protect the buyer, only the lender if the buyer doesn’t pay. It is a cash cow for lenders; it’s basically their insurance plan. It’s like paying insurance on a person you don’t even know – what benefit does it have for you, none. I would try and see if you could save up a little more money to be at 20% of the purchase price. If you do this, you will pay up to 30% less over the time of your mortgage term. This can amount to thousands and thousands of dollars. Did you know that PMI can add $ 100 – $ 300 more a month to your mortgage payment…think of how much you could be investing with this money instead of “throwing it away.” If you an get out of PMI, I would DEFINITELY do it. SOme mortgage lenders offer this. Do a global search on google for the specials that these lenders are advertising. PMI can be better negotiated depending on the type of loan you get; never get an ARM or Optional ARM loan; you will have more bargaining power if you go for a fixed loan. Bank of America had one of these “deals” a long time ago. You can also do an 80/20 loan (like mentioned above) but many banks are no longer offering this option because it can put the bank in a loss situation since 80/20 liens can be separated and sold to other servicing companies. First lien always takes presidence, so if a bank owns the 2nd lien, they will take the loss in any kind of litigation on the property.

    Hope this helps.

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