How to Buy with 5% Down- HomeStyle + PMI

How to Buy with 5% Down: HomeStyle Conventional + Private Mortgage Insurance

Anyone who has read my Blog knows I am a big advocate of buying a property with a rehab loan. The reason why is often such properties can be bought at a discount in a buyers preferred area. Meaning why not buy the worst house in the nicest area and fix it up to realize an increase in value based on what the other houses sell for in that area.

I want to educate and encourage buyers, whether first time buyers or repeat buyers to take advantage of using a 5% down payment along with a HomeStyle conventional rehab mortgage. I have had several clients who are first time buyers use HomeStyle to buy a single family home or a condo successfully with funds to update it. All with a 5% down payment. The 5% down payment is based on the purchase price plus funds to rehab.

Private Mortgage Insurance is something many people may have heard of and may not necessarily like paying each month with their payment. After all it adds to the monthly total house payment along with mortgage principal & interest, property tax and hazard insurance. There is another little known way to pay for PMI. The other way to pay PMI is pay it all at once on the day the purchase closes in one single payment to the mortgage insurance company. This is called Single Premium payment mortgage insurance. Like all PMI the actual cost is based on both the buyer’s credit score and the percent of down payment. I am spreading the word about Single Premium mortgage insurance because it makes owning a home more affordable each month and almost no one ever educates buyers about it. It’s almost a secret!

Let me present an example of how to put HomeStyle together with PMI and pay it all at once on the day of closing:

  • Purchase Price = $200,000
  • Rehab funds needed = $50,000
  • 5% down payment on $250,000 = $12,500
  • Total Mortgage size = $237,500
  • Monthly PMI cost estimated in this example at a buyer’s 720 credit score about $145 a month
    Single Premium PMI cost estimated in this example at a buyer’s 720 credit score about $5890 or 2.48% of the loan size to be paid off all on closing day
  • The buyer can either pay $145 a month for years until the PMI cycles off automatically by Federal law once the buyer has 22% equity or the mortgage is equal to 78% of the home’s value
  • Or using Single Premium mortgage insurance the buyer pays $5890 on closing day and never pays any PMI again- nothing to pay monthly for PMI at all
  • One way to pay the Single Premium PMI $5890 or 2.48% of the example loan size is to ask the seller to pay the buyer up to 3% of the sales price to cover the Single Premium mortgage insurance as a “seller closing cost credit”- ask for it upfront when first submitting an offer contract to a seller

To Summarize:

  • We see how to buy a home with 5% down, not 20%, and secure funds to update & repair it with HomeStyle resulting in one loan, one monthly payment
  • We see how to pay the PMI off all at once on closing day rather than pay each month
  • We see how HomeStyle allows a seller to give a buyer up to 3% of the sales price to pay closing costs of which Single Premium PMI is one

My focus in writing this Blog post is to educate both buyers and Realtors of the advantages of buying virtually any home with a HomeStyle rehab loan. Rather than look at dozens of homes why not find the most ugly, scary, unappealing one in a great location you love and add funds to make it exactly the way you want it ? Plus maybe even buy it at a discount 🙂

Please know that you may be able to do this with a 5% down payment and not have to pay PMI each month. Here is a link to the Top 10 Questions & Answers on HomeStyle I wrote about previously:

Top 10 HomeStyle Rehab Loan Question & Answers

I’m happy to answer your questions and welcome comments on my Blog.

Perry Farella pfarella@amerifirst.com 773-248-8422

Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. Not all borrowers will qualify.

3 Comments on “How to Buy with 5% Down- HomeStyle + PMI”

  1. Is it possible to avoid paying pmi if the after renovation appraisal shows enough equity in the home?

    1. HI,

      On PMI the only way to remove it quickly is to refinance out of the 203k or HomeStyle rehab loan into a conventional loan without any PMI if the property is not mortgaged past 80% any longer. We often do a second appraisal after construction to see if values have moved higher since the first appraisal was done as a projection off paper at the start.

  2. in early steps of purchasing a home and looking toward HomeStyle to add ductless split A/C and run gas line for a range and other cosmetic items. I am in Chicago and my numbers are almost exactly the same as your example of $250K; if the 3% closing cost assistance from the seller is used for Single Payment PMI, how much would I need to bring to the closing table with property taxes of $4500 per year?

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