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This is a public service announcement brought to you by the “Learn-it-the-hard-way” department of St. Joseph’s Vanguard.
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If you buy a house and put less than 20% down on it, do not, I repeat, do not get Private Mortgage Insurance (PMI) on your loan.
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Instead, find a lender who will give you a second lien. For example, if I bought a house and put 5% down, then most likely I would get the first lien paying 80%, then the second lien paying 15%, which when combined with my 5% would pay for the house.
This second lien will be at a higher interest rate and will have a shorter term on it, most likely, which could include a balloon payment at the end if you didn’t pay extra principal on it, but it is better than dealing with what I call the PMI racket.
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You know that it is a racket when laws have been passed to keep mortgage companies from taking advantage of people like you and me.
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PMI is a racket because you pay X dollars per month as “insurance” in case you default on the loan, which is all well and good, but the thing that stinks is that, in order to get it removed, you have to pay $350 or so to get your house reappraised, then cross your fingers and hope that the appraisal goes well and that you now have 20% equity in the house based on how much you’ve paid so far, and then you still have to jump through hoops and try to fight the mortgage company putting up smokescreens so that they can keep you paying.
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My mortgage company, in documentation they sent to me, listed 4 or 5 criteria for getting the PMI removed, and when I asked them which of those were hard requirements versus things they just “liked” to have, they were real cagey and wouldn’t answer me straightly.
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Well, that’s enough ranting from me. PMI can make sense in very certain situations I think, but by and large it is a racket that causes extra headaches that you should avoid if possible.
