25% down for PMI?

[markusk]

So I spoke with the local WaMu bank to get pre-approved for a mortgage. To make a long story short, they told me that in order to avoid PMI, we need to have 25% down! This is because the bank is going to assume that home prices in CA are go to continue declining AFTER we buy, by at least 5%. It doesn't matter that we haven't found a home yet (next week, next month, in the next 3-6 months?).

Has anyone else come across this? Or is this specific to Wamu and some of the problems they are going through?

I am definateley going to talk to a different mortgage brokers.

[responduser]

I would suggest you to talk to some other mortgage brokers.

In this case, you may find more options to choose from!

[Brokemofo]

Wow, I've never heard of them requiring 25% down, but the way it has been changing at our bank I'm not surprised.

[tripods68]

Based in that info, why would you buy a house that will lose 5% the moment you signed the paper. It doesn't make sense. In this market patience is everything and perhaps wait 6 more months or another year when market hits "bottom". But that's also depends on your location where bottom prices been reached. We live in NorCal where we can expect to see more declining home prices.

[MonkeyMama]

I have heard this all year in California. I doubt WAMU is the only bank.

Not only do you need 25%, but if not, the PMI rates have gone through the roof here. I've heard people paying $500/month with good credit and very small mortgages for the area.

I don't know anyone personally, but much talk about it on the radio call-in shows. WE are trying to refi but we have well more than 25% equity, so personally have not heard much about PMI.

[markusk]

Thanks for the response so far.

Here is an update.

I physically met with the WaMu loan officer (armed with W2's ect) and she gave be a better/different explanation. When we spoke on the phone the other day, it was not in reference to PMI, but to just qualifying for a jumbo loan.

Apparently, our local county in NCal was down graded to a "D" (A is the best risk, and E is the highest risk), so in order to qualify for a jumbo loan -- which is basically everyone here in NCal -- you must have 25% down. This is because the bank is assuming that home prices are going to keep going down.

We are going to get pre-approved regardless due to our good credit, but I am in the process of talking to other mortgage brokers to see if this is specific to Wamu.

[DebbieL]

Why do you want to catch a falling knife? If house prices are on a decline (which they are sure to continue for some time yet in California) - and you would need a jumbo loan anyways - this is a losing proposition. I would rent (which I am doing in my overpriced market) and save my money. Better to buy in closer to the bottom (and you'll have much more money saved too). This is going to be a long, painful process for people who bought in at prices more than any sane person would be comfortable with (which is most of the people who have bought in recent years in your area). I believe you will be far better off if you wait for the fire sale prices and save your cash. Being house poor sucks anyways.

[project15]

We avoided PMI by doing an 80-10-10 loan with 10% cash and 10% on a secondary loan. The secondary loan is at a slightly higher rate, but over the life of the loan, we are saving money doing it this way vs. putting 90% onto the primary loan and paying PMI

[zooracer]

I am buying a house now in central florida. Through countrywide we have to put 25% down also, which we are.
But, it is a straight 30 yr conventional on a 130K house.

I agree with Debbie, if the prices are supposed to keep falling and you need to get a jumbo...I would rent.

[MonkeyMama]

I've heard much about 25% PMI with non-Jumbo loans as well. But yeah, that could explain much of it. It's more of a regional thing than anything (Florida being very similar).

[Brokemofo]

We avoided PMI by doing an 80-10-10 loan with 10% cash and 10% on a secondary loan. The secondary loan is at a slightly higher rate, but over the life of the loan, we are saving money doing it this way vs. putting 90% onto the primary loan and paying PMI

This is not always an option now that banks are limiting their risk. In many areas of CA, FL, NV, OH, MI, IN, AZ banks will only lend up to somtimes as low as 65% Combined loan to value (CLTV) on 2nd mortgages. I would say every day I decline at least 5 people I could have approved 9 months ago.