Creatively Avoid Private Mortgage Insurance
Help those home buyer clients, who require more than 80% financing, avoid the high cost and additional approval of Private Mortgage Insurance by designing the financing in ways that redirect the money they would have wasted on PMI premiums into a first and second mortgage combination that gives them more buying power, and more tax deductions.
For example . . . If a buyer can only put down 5%, avoid the 95% first mortgage with today's high cost of PMI (which only insures the 15% portion that exceeds 80% anyway). Instead, design a 5/15/80 solution. With an 80% first mortgage, the buyer can avoid PMI. Obtain a 15% second mortgage, which is likely to cost less than PMI would have cost. Often, the first mortgage lender can arrange for that second mortgage through an affiliate lender, or can take it directly. That leaves just the buyer's 5% down payment, and even that can often be creatively assembled, with the first mortgagor's approval, of course. Then, show your buyer client how to accelerate the 15% second mortgage to get rid of it soon, and without prepayment penalties.
All you really need are two plans: a 5/15/80 plan, as shown, and a 10/10/80 plan that uses a 10% contribution from the buyer. Virtually all other requirements can be creatively adapted to one of these two plans, including creatively assembling the buyer's 5% or 10% cash portion. Properly designed, and with full disclosure to the primary lender, it can work every time.
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