closing soon- questions?

[ShanahBanana]

What is the name of your state? Tx

Hi,
We're buying a home and closing in just over a week. I have a question though so I'm not surprised at closing for some reason.

We're going thru a local bank loan officer for the loan and she said it was a conventional loan (100% financing) and the GFE also says "CONV PURCH GFE" on part of it at the top. My question is- is a fannie mae loan really a conventional loan or considered a government type loan?

Seems like a simple question but I really can't find out for sure on any searches I have done here or elsewhere. I'm curious simply because I want to make sure the loan officer has given me correct information. She said that the PMI (private mortgage insurance) could be requested off our monthly mortgage pymt once the LTV was at 80% or below. However, I read elsewhere that on "government loans" you cannot request that to be removed and must pay it the entire length of the loan?

The only reason I question whether what she's telling me is true or not is because she also told us that we could do the loan on 30yr note (versus 20yr note because that would make our monthly pymt so high that we may have problems with it in the future should anything happen to our income in any way where it was lessened quite a bit or something) and if we really wanted to pay it off in 20yrs (which we do- because we don't want to be paying this monthly mortgage pymt until we're 69/70yrs old) that all we'd have to do is pay one extra house pymt per year and it would be paid off in 20yrs. Well I'm not sure that's the truth because I found a calculator that allows you to put in the terms/etc. of your loan then will calculate if you added either monthly to the principal or one pymt per year/etc. If I put in one extra house pymt per year- it only knocks off between 6-7yrs off the note, not 10yrs.

So anyway- the reason I ask about the fannie mae is because in the GFE at the bottom as a "reference" or item no area- it lists Fannie Mae with address/etc. for reference to line 805 (which on the GFE is where the processing fee, underwriting fee, etc. is listed). So that makes me think this is a Fannie Mae loan and here are my questions again:
1) is Fannie Mae a government loan or conventional?
2) if it's a government type loan- does this mean we really cannot ask for the PMI to be removed at a later date once we have reached under 80% on the LTV?

And lastly- just to make sure she has told me correctly. From what I am reading online it appears that there is a lot of confusion, even among posters on this board, on what the VALUE is in the LTV figures. for instance- is the value the original amount of the loan? Or is the appraised value at the beginning of the mortgage? Or is it the lesser of the two? The reason I ask is because the home we're buying is purchase price 200k, the appraisal came in at 220k, and our loan officer is saying we can request the PMI to be removed once our principal balance on this loan is at 176k or lower. Is she telling the truth? Or is it really going to have to be at 80% of the original loan (200K) and that means we'd have to have the principal down to 160k before we can request this? OR does it mean that once we "think" we're at 80% LTV that we get another appraisal (either on our own or thru lender- not sure which. original appraisal was thru lender btw) and whatever amount it appraises at THEN would be the "value" part of the LTV to try to get under 80% to get rid of the PMI pymt?

Any help you can give with these questions is very much appreciated, in advance.

 

[LindaP777]

It seems as though you are getting a conventional loan. Most loans are. HUD loans are. There are certain restrictions for buyers who might not qualify (or the property might not qualify) for a conventional loan. An example; a property owner can have no more than 10 mortgages with the same lender (this would be for investors). Or if buying a condo, the property itself would have to qualify for a conventional loan. One restriction would be no more than 50% (?) of all the condos in the community could be rentals.

My favorite amortization calculator; http://ray.met.fsu.edu/~bret/amortize.html

Some lenders require a "seasoning" period before you can have the house reappraised to re access the LTV and remove PMI. Unfortunately, I don't know about HUD loan requirements.

 

[moburkes]

Generally, a lender will require 1 of 2 things if you would like to remove PMI sooner than the date that it would "normally" be removed.
1. a new appraisal. Therefore, PMI is not based on the loan amount but the appraisal. You write the lender a check for the appraisal (they will tell you exactly how much it will cost), and THEY will hire the appraiser.
2. Proof of upgrades to your home (pool, an addition, etc) that will increase the value.

They will tell you exactly what they will accept as "proof" in order to remove it.

 

[moburkes]

Oh, and instead of paying once a year an extra payment, divide your monthly principal and interest by 12. Pay that amount extra EACH PAYMENT, instead of making 1 additional payment at the end of the year. Put that into the calculator. You should find that it will pay off the loan a little faster than the other method.

 

[ShanahBanana]

Thank you for the replies.

This is a single-family home and will be our primary residence.

moburkes- you stated what would happen/what needed to be done if we wanted to request the PMI removed before it "normally" would be-- what is the "normal" time it would be?

(ie: would that be based on the original appraisal amount or the original loan amount?)

Also, yes... in playing around with the calculator online I have noticed that putting the same amount in, divided by 12 monthly pymts, yelds the note paid off sooner than making one extra pymt per year. You're dead on about that- but it still won't make it knock off 10yrs like she said. Using the calculator I have figured out that putting about 150% of the normal monthly pymt (including PMI, ins and taxes... not just P&I) and dividing THAT by 12 monthly pymts and sending that much extra each month will knock off around 10yrs. Quite a difference from what she said.

I'm still unsure if a Fannie Mae loan is a conventional or a government type loan. I do not see our we, or the house, wouldn't qualify for a conventional loan and that is what we were told we were getting- but then I noticed the FAnnie Mae notation at the bottom in reference to the loan/underwriter and I can't seem to get a clear answer on if that's a conventional loan or a govt type loan. Is the reason I can't get a clear answer on that -because it could be either/or?

I guess I should just assume that it's a conv. loan like she said- considering that the posts on this thread have talked about removing the PMI and surely that advice wouldn't have been given/shared if this loan, even with reference to Fannie Mae loan, were a govt loan where you cannot get the PMI removed for the entire length of the mortgage.
?

thanks again for your replies.

 

[IrishNodak]

Oh, and instead of paying once a year an extra payment, divide your monthly principal and interest by 12. Pay that amount extra EACH PAYMENT, instead of making 1 additional payment at the end of the year. Put that into the calculator. You should find that it will pay off the loan a little faster than the other method.

Just the principal and interest moburkes? Don't include any escrow amounts? I am putting that into our budget starting Jan. 1st. Thanks!

 

[moburkes]

Escrow has nothing to do with paying your loan off early. Escrow pays for your taxes, insurance, and PMI insurance.

The loan officer misspoke. She was making a generalization. How soon you can pay it off using extra payments, is somehow also tied to the interest rate. On my first loan, when the interest rate was higher, doing the exact same thing that I described, would have paid off my loan about 3-5 years (I don't remember exactly) faster than when I refinanced at a lower rate. Since you'd like to pay it sooner, and if you have the extra money, then play with the loan calculator. Add $20, $30, ect more, to see where it gets you.

I'm not sure why you're having a difficult time finding out about a conventional loan. I googled "what is a conventional loan" and the very first item that came up stated this:
Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac. Conventional loans can be made to purchase or refinance homes with first and second mortgages on single family to four family homes.

I did a google search for "what is PMI". This is what I found:
What Is PMI and How Is It Calculated?

It would take the average couple more than five years to save enough for a 20% down payment on even a modest home, but thanks to PMI, home buyers can purchase a home years earlier by buying insurance that protects the lender. Private Mortgage Insurance (PMI), protects your lender if you default on your loan. It's calculated based on the amount you borrow for your house, and is rolled into your loan and added to your monthly payments. Remember: PMI protects the lender if you default on the loan; it does NOT protect you.

How Do I Know If I Still Need to Pay PMI?

Before the Homebuyers Protection Act was passed by Congress in 1998, lenders were not required to notify homeowners when the equity in their home reached a level where PMI was no longer required, so many homeowners continued to pay this cost unnecessarily for years.

Your home falls under this act if you purchased, constructed, or refinanced your single-family home after July 29, 1999, and your loan is not a government-insured FHA or VA loan. If you purchased your home before July 29, 1999, your lender is not required to cancel your PMI when you reach 20 or 22% equity, but many lenders will do so if you ask.

How and When Do I Cancel PMI?

If the act applies to you, your lender is required to automatically terminate your PMI when your equity reaches 22% of the original property value at the time you took out the loan.

For example, say you purchased a house valued at $100,000, paid $5,000 down, and financed $95,000. Your PMI would be cancelled when your equity reached $22,000, i.e., when the principal balance of your loan reached $78,000 (see calculation below).

Alternatively, rather than waiting for your lender to cancel the PMI, you can request that it be cancelled when your equity reaches 20% of the original value of your home (as long as it hasn't decreased in value). If your mortgage is owned by Fannie Mae, PMI can also be cancelled when your loan balance goes down to 75 percent of your home's current value, as established by a new appraisal. The loan has to be at least two years old and you must have made your mortgage payments on time.

 

[ShanahBanana]

Thank you again for your reply, moburkes. I really do appreciate it!

Yes, I do think she mispoke. Our interest rate is 6.25 and I sure can't see how making one extra pymt a year (even if that pymt were the amount that we normally paid ie: including escrow amount for taxes, insurance and also the PMI amount) could knock off 10yrs. As I said I played with the calculator and I'd have to do a monthly addtl amount- in excess of 150% (per year) of that amount (mentioned above -normal house pymt including PMI and escrow amount/etc.) divided by 12mths in order to get 10yrs knocked off by paying ahead of time. Since she "mis-spoke" about that- I thought perhaps I wasn't getting the true information about how the PMI will be able to be removed later on.

However, you have given me more information that confirms what she said- exactly.

I'm not sure why you're having a difficult time finding out about a conventional loan. I googled "what is a conventional loan" and the very first item that came up stated this:
Conventional loans are secured by government sponsored entities or GSEs such as Fannie Mae and Freddie Mac.

That's the type of information I came up with also- and apparently I was confusing "government sponsored... including Fannie Mae" with "government insured" such as you posted:

Your home falls under this act if you purchased, constructed, or refinanced your single-family home after July 29, 1999, and your loan is not a government-insured FHA or VA loan.

Apparently government sponsored and government insured is not the same thing. Thanks for clarifying that for me!

This is basically word for word what the loan officer told me:

Alternatively, rather than waiting for your lender to cancel the PMI, you can request that it be cancelled when your equity reaches 20% of the original value of your home (as long as it hasn't decreased in value). If your mortgage is owned by Fannie Mae, PMI can also be cancelled when your loan balance goes down to 75 percent of your home's current value, as established by a new appraisal. The loan has to be at least two years old and you must have made your mortgage payments on time.

She didn't mention it must be atleast 2yrs old but unless the house appreciated really really quickly (and we're going into it with 20k equity already) we wouldn't be at 80% or below that on LTV anyway, before 2yrs. From the way I figured with the calculator- even if the house did not appreciate (nor depreciate) at all, with paying extra (again to try to pay the loan off in 20yrs vs 30yrs) we're looking at around 5-6yrs before removing the PMI... sooner only if the house appreciates before that time. I highly doubt that would happen before the loan was 2yrs old anyway.

Thank you very much for answering my questions and clearing things up for me. It is very much appreciated!

 

[PghREA]

On paying off your home in 20 years, print out an amortization schedule for your loan (principle and interest.) Look at the principle payments for each month. At the beginning of the loan only a small amount of your monthly payment goes to principle. If you can make additional principle payments in the early years, you will see how quickly you can knock 10 years off.