So we have looked at the PMI options now lets take a look at a completly different way to avoid PMI altogether by splitting the loans. Remember we said the rule is that you must put 20% down not to have PMI. The loophole is that the bank doing the first loan is concerned with their risk. Here’s what we do… With lenedr A we do a 20% down 1st mortgage and then with Lender A or another Lender we do a 2nd mortgage to make up the difference between your down payment and the 20%. For example you are buying a $300,000 home. You would do a 1st mortgage for $240,000 (300,000-20%) and then take a 2nd mortgage for $30,000 (10%) and put 10% down and this would completely eliminate PMI. There was a time when you could actually do this with no down payment (80-20) but the Lenders now will pretty much only do a max of 90% CLTV. (80% 1st LTV + 10% 2nd CLTV)
What type of loans do I get?
The first can be a fixed or an ARM usually a 5/1, 7/1 or a 10/1 and the seconds can be a HELOC or a fixed rate loan.
What would the rates be?
The first would be current market rates mostly and the seconds would be maybe a few percent higher in most cases.
NOTE: You can also use this to avoid a jumbo loan by keeping the 1st at the conforming limit and adding a 2nd on top.