BofA Mortgage PLUS has no PMI

I think your logic is flawed in a couple ways. I think one is looking at it with a smaller FHA down payment. I assume that FHA has a smaller minimum, but probably lets you make a larger down payment too, right? So for an even comparison, I think you should start with an equal initial outlay (which would still give the FHA option a slightly lower down payment due to the fees).

I'm surprised that PMI is $140 per month more than .375 in interest on over $100k. Are you sure that's correct? We had PMI on our first mortgage about 15 years ago, and I'm pretty sure it was about $100 per month for a similar balance. We had 10% down, so maybe that kept it lower.

And one difference to keep in mind is that the PMI can go away - find out how FHA does it. We got rid of ours by refinancing after just a few years (rates were better, property values had increased, we'd made some modest improvements and paid off a wee bit of principal).

Still, the BofA deal looks like a reasonable option, it mostly depends on your time horizon and verifying the points I raised. In the recent past, mortgages have been churned very frequently so I think it is best to favor the better short term option. If your credit is good, I think refinancing will continue to be an easy and sensible option when better deals come along.

Let me try and clarify a couple points.

First, my comparison is between the two loan types, and trying to find the best deal with the least amount of cash out of my pocket. Maybe that's too many variables to easily figure with, but thats what my attempt is about here.

Next, yes, FHA min is less. I was looking at it as both loans, with their respective minimums.

The 140 dollars difference was a guestimation to start with. however, it breaksdown to:

$45.00 (additional payment ont he additional $8,400 financed but att a lower rate. (diff of 10% vs 3% dn))

I guestimated PMI on a loan of 110ish K to be around 75.00.
(I think PMI is 0.75% of loan /12?. If yes, that is exactly 75 a month)

so, 45+75= 120. So, replace the 140 I mentioned in the OP with 120.

So, by holding my 8.4K in my pocket and doing an FHA type loan, I would be paying outt $130 more per month. Over 5 yrs=60 months, that would be 7.2K.

So, not exactly equal, but my guess was close.

Also, the 5 yrs is not anything exact. I might be there 5, maybe 3, maybe 10(doubtful), but I used itt in my example because that's a common heard timeline to stay in one place, esp a starter home.
I always understood that FHA carried PMI for the life of the loan. Maybe that's wrong. Nontheless, with a 30 yr loan, and standard monthly payments, on a conv. loan, equity wouldn't hit 22% until 11 years and 8 months.

thoughts?

I say go for Bofa especially if the loan is something you can pay off earlier than 30

who knows where the home values are going to go? you might be paying PMI for a long time with the other option

I have done the 5% BOFA a yr ago and am happy with it at 6.75% (with 1.5K in points though)

I don't know anything about jumbos but pmi is required on almost any conventional loan when you don't put 20% down. I WISH there was another way to avoid it.

However, it appears the BofA no fee loan is about the only way to avoid PMI and that results in a slightly higher interest rate.

However, note that that isn't my biggest concern, because of the savings on closing costs at this point and the fact that I can later refi it if rates drop and there are no prepayment penalties.

While people might live in houses a long time, the average length of a mortgage is a lot smaller.

Do you anticipate refinancing the mortgage anytime in the next 5 years. If so, not only should you go with the cheaper option, but you might want to consider a 5/year ARM. I would check out the 5/5 (resets every 5 years) from Penfed.

A PenFed HEL for the other 10% is 5.99 for 20 years.

Ask the other lenders if they have a prepayment penalty. I haven't seen this for years, and it may even be illegal nowadays.

If you put 10% down you may be able to get "partial" PMI, which is, of course, less that the PMI cost if you put 5% down.

Also ask the other lenders about rolling PMI into the loan, either by borrowing an additional amount, or by rolling it into the interest rate. Any lender should offer this.

If the value of the house goes up, you don't have to wait until you have paid the full PMI value down to 20%. You can have the house appraised, and they will determine if you are within the 20% based on value, and not on the percentage you have paid down.

Do consider Wells Fargo if they are in your area. They have a no-cost refinance if the interest rate goes down after you are in the house for a while. They also gave us an extremely low interest rate (compared to the others), but that was before the sub-prime meltdown, and we were a corporate move.

Ditto on getting the GFE (Good Faith Estimate of closing costs, interest rate, points.) This is a given.

- bcc

StevenColorado said:Huh? I thought ANY loan of over 80% LTV had PMI.No, only conventional conforming loans with LTV's over 80% must have PMI. In other words, all Fannie Mae and Freddie Mac loans with LTV's over 80% are required to have PMI. This allows lenders to sell these types of loans on the secondary market.

Now, lenders are certainly allowed to offer portfolio loans which do not comply with the Fannie and Freddie requirements. These portfolio loans are typically held by the originating banks in-house, so they don't have to worry about 3rd party requirements and can afford to be very flexible with their terms. ALL jumbo loans are non-Fannie/Freddie loans, as are all second mortgages (HELOC's as well as HEL's). BOA's "no fee" loan is a portfolio loan, so BOA sets its own rules for it and does not require PMI.

One of the advantages of providing a Fannie/Freddie type loan and then selling it on the secondary market is that the lender can quickly get its capital back to loan to other borrowers. So, conventional loans allow lenders to collect smaller profits on a larger number of loans. It also allows lenders to greatly reduce the default risk to their portfolios, since the default risk is passed on to the investors who buy these loans. Now, portfolio loans allow lenders to collect greater returns on a smaller number of loans but also require them to commit their own capital to the loans and to face much greater default risk. Offering portfolio loans also allows lenders to capture a greater share of the market by dealing with people not wanting/needing Fannie/Freddie loans, which often causes these borrowers to divert additional business to the financial institutions, thus increasing their profits. The above is obviously a greatly over-simplified explanation but it should work for the purposes of this thread.

RhizzleBop said:I'm looking for the best loan, 30 yr fixed. I found a house that I'm offering on now.

I'm leaning toward tthe BofA no fee deal.

As of today, its 6.875 no pts, and no prepayment penalty, and Min of 10% dn.

Looking at Penfed, looks like 6.5 no pts and approx 2K in fees. Ibelieve they also require 10% dn.Penfed's ARM programs are some of the most competitive ones in the country. However, Penfed's 30 year fixed loans tend to not be particularly competitive, which could explain the reason that you are coming up with such a small difference in interest rates between Penfed and BOA here. Check around with other lenders and you will often get much better terms than the ones you can get from Penfed on its 30 year fixed.

By the way, how long are you planning on staying in the house? Have you looked at the FW thread discussing Penfed's 5/5 ARM's? Depending on the spread between 5/5's and 30 year fixed, even assuming the maximum adjustments on the ARM, the breakeven period between the two loans can often be over 10 years.