Reader Comment on Home Buying Troubles

From last week’s open thread:

“My fiancee and I are in the process of buying a house – we’re almost done with the inspection and we were almost to the home stretch until this insane financial crisis caused PMI (private mortgage insurance) to skyrocket. I know we’re lucky to even GET a loan, but the payments we had projected have gone up by several hundred dollars. Now we aren’t sure if we’ll be able to afford our payments! We’re running through all the scenarios now and hoping for the best, but we’re very nervous…”

This is crazy. Isn’t PMI fixed? Does it often fluctuate? Sorry to hear of the headache. Let us know what happens.

28 Comment

  • you can usually avoid paying PMI if you can secure a second mortgage in addition to your “jumbo” loan. The second one will no doubt be higher interest but it usually works out to be less than the additional cost of PMI.

  • I have a feeling that the ol’ 2nd mortgage trick doesn’t fly since the loan crisis…

  • Play it safe, go NACA ( A lengthier process but no PMI and other variable rate scams.

  • Yup- the 2nd mortgage is out the window. There is literally only ONE lender you can use in DC right now.

  • I have a friend trying to buy a place — the mortgages where you could take a second loan to avoid PMI are no longer available, or at least her broker can not find any bank offering them. Also, you have to put at least 10% down – interesting to note that in the DC area typically 30% of first time home buyers were getting 100% financing in recent years. She was quoted about $100 extra for PMI – a real drag given that home prices are still high despite recent cooling of the market.

    I just looked at the NACA website…looks interesting. How do they get around the PMI issue?

  • Disclaimer: I got my mortgage through NACA about four years ago. YMMV.

    NACA is a fascinating story, they arose originally out of a union in Boston who’s members figured out they were getting scammed on loans. They sued the lender and won. Based on that experience, the union formed NACA and went after Citimortgage for similar predatory lending and redlining practices. The end result was landmark: NACA became the broker for about $5 billion in Citimortgage loans. So, NACA reviews you and works with you and makes sure you can afford the home you’ve chosen, but your actual mortgage comes from Citi, which is legally obligated to provide the loan at a rate of prime plus one (and you can reduce that). So, you avoid all the recent turmoil in that there’s no APRs, no over-buying, and no PMI.

    Note that while there is no formal PMI, there are two other things of similar nature: 1) you pay about $50 a month into something called the ‘neighborhood stabilization fund’ which is used to help other NACA members when they face trouble, and; 2) NACA holds a lien on your home in the event you totally default and they have to get involved. As far as I know, #2 is rarely actually used but it is there and you should be aware of it.

    Anyways, the way to get started is to sign up and go to one of their workshops. Then you’re paired with a councilor who reviews your finances and gives you some steps to follow. A couple things to note: I’ve had friends who have gotten frustrated and dropped out, or gotten frustrated and gotten mouthy and been kicked out. They get frustrated as its a slower, more methodical process, its not the pump-and-dump you’d get from a normal mortgage company that just want to pass you, collect their fees, and bundle your risky mortgage into a security for some poor dumb Swede to buy into. Also, NACA closes more mortgages locally than most five other mortgage houses put together, all with a shoestring staff. So, some chaos is likely.

  • If you have the nerves for it, maybe you could back out and explain to the seller that you can’t buy the house at that price anymore and submit a lower offer. You guys obviously aren’t the only ones facing this issue, and with all of the uncertainty right now the seller might be nervous enough that they wouldn’t find another buyer to pay what you originally offered in the near future.

  • If you are thinking of backing out be damn sure that they cannot sue you/keep your earnest money. Remember that you signed a contract. If they have turned away potential buyers because of your offer/contract then they might be pretty upset and take your earnest money. I would check with a lawyer before backing out.

  • I was just looking at the thing about the monthly dues. So do they help you get a below-market interest rate to cover the dues? If so, that would make sense. Once you buy your place are there any restrictions (e.g., you can’t sell for at least 5 yrs…I tried buying with ACORN before and remember seeing these sometimes)?

    Regarding backing out of a contract, you do have a period where you can legally back out (in my friend’s case, I think you get 3 days after receiving the condo docs). If you have an inspection clause in your contract you can walk away based on the inspection (I’m sure there’s no house in Petworth without something you could use as an excuse). In both these cases you would get your deposit back.

  • SM: the guaranteed rate is prime plus 1. You can buy down the interest rate as well, I forget the formula though. There are people literally with 0% rates as they bought it down that far. Whether that covers the difference on the dues I cannot say, but since the dues are $50 it overall was worth it for me.

    Re: restrictions, the main one is that you need to live in the place, ie no second home or rental property is allowed. Also, they cover a specific geographic area which you’d want to check with them, but in general its anything inside the beltway in this area. Lastly, if you are doing a full renovation / rehab loan then that’s a whole other ballgame.

  • I bought a home using NACA over the spring. Have a nice three-bedroom for the price I was paying to rent a condo. I have encouraged several friends to check them out and they’ve ended up frustrated with the process, but it worked out great for us.

  • Can you use NACA to re-finance an existing loan?

  • Doesn’t NACA have a cap of (around) $400,000?

  • Yes, one can work with NACA to refinance. I don’t know too much about it, but they want to work to prevent homeowners from losing their homes.

    The NACA cap is $362K. It can be less based on one’s income and what you have been able to pay in rent while saving in the past.

    It is rare for me to go on a blog and blather away about a product or service like this. If you can afford to go over that cap, obviously this wouldn’t be for you.

    p.s. one more thing to add is that if you were the kind of person who was a decent or above student in school, you may find the intro workshop tedious due to all the wacky questions from the peanut gallery. The guy who recommended NACA to me warned me about this and said it is worth it in the long run. He was right.

  • PoP, regarding your question, PMI is fixed. However, what probably happened is that when the commenter applied for their mortgage, they were given an estimate for the PMI. The PMI does not get fixed until the mortgage lender formally applies for it through the PMI company…it is entirely possible that conditions changed in between the application and the latter date to cause the increase.

    I would strongly encourage the poster to look at Navy Federal Credit Union if you are eligible to join. They offer a loan product whereby you have a low down-payment (at least 3 or 5% depending on the city), and you don’t have any PMI (in exchange, you have a higher interest rate).

  • My theory is if you don’t have enough of a down payment to get out of PMI then you can’t afford the house.

  • Oh right, the NACA cap, I think it was waived when I was going through the process, and regardless my income didn’t bring me close to it. So, double check with them.

    And yes, the workshop is annoying, but for a 5% 30 year fixed rate and no money down, it was worth it 😉

    I know a few other people who used NACA, two did very well with it. The other few were pretty rich pricks who were miffed that someone wanted to make sure they could afford the house. They got testy and mouthy and basically got kicked out, NACA doesn’t play like that. The process is slow and steady, not fast and crazy. Our national financial system would be much better off if everyone used NACA or followed its guidelines.

  • Good point Chris. PMI itself is a bit of a red flag. Of course, a ‘problem’ with DC is that the nicer and safer areas are likewise more expensive. Thus, if you stay within your means, like I did, you might then be stuck in a place you don’t want to be (ie between the thugs and the junkies). Another friend of mine put his family in serious debt to live close Adams M, as the only properties he could truly afford were on upper Georgia, where he didn’t feel safe.

    Okay now I’m just rambling.

  • I think that these situations will be very common in the coming year, which will ultimately cause prices to drop in the area. If I were in the market to buy, I’d look at any delays as an opportunity to save money on your purchase price. Sadly, I’m already an owner…

  • You used to be able to do something called an 80/20, which was two separate loans. Since you are required to have PMI for downpayments below 20%, this was an easy way to avoid paying PMI. However these loans are almost never a good idea and I doubt there are too many lenders offering them anymore. Will you be able to receive the $7500 Federal homebuyer tax credit? How about the DC $5000 credit? Of course these would only help you for 2 years or so, but represent a substantial amount of money.

    Is your interest rate locked? The Fed will probably drop interest rates in the next few weeks, and that would lower the lending rate quite a bit. That could lower your monthly payment by at least a couple hundred dollars.

    As far as buying down the rate: there is no way you can buy down to a 0% rate. Usually the most you can do is 0.5%. Also there is no point in buying the rate down below inflationary levels because: A) that would prohibit you from deducting mortgage interest (a BIG deduction) and B)if inflation is 4.5% and your rate is 4.5%, you’re already getting the money for free.

    Very VERY few FTHBs are able to put down a 20% downpayment, especially in this area. As long as you go with a fixed rate and you understand your payments there is no reason why one shouldn’t do a 5 or 10-percent-down loan.

    I’m actually in the market to buy a home in CH or Petworth right now, and hoping to buy before the end of the year. There haven’t really been that many properties coming to market, I think because investors are snapping them up. One house I looked at sold for $452k in 2005 and now they are asking $350k, and I really don’t expect prices to drop much further at all. Homes are already selling very close to asking price…

  • By 0.5% I mean you can buy down the rate by that amount, not get an APR of .5%. Thus, 5.75% APR can be bought down to 5.25%, but that’s it.

  • The House has not passed the DC $5000. credit for 2008 yet, and we don’t know that they will.

    Even if the Fed drops the rate, it does not directly correlate to mortgage rates:

    The DC Bond Program is also worth looking into:

  • I just got approved a few weeks ago for a loan through the DC Bond Program and there is no PMI (though there are price restrictions). Check out this flyer:

    I am using Bank of America and so far so good.

  • Per my comment that the DC Tax Credit had not passed the House yet, an anonymous poster offered this in another thread:

    “The D.C. homebuyer credit was signed into law last Saturday, October 2008, as part of the bailout bill. It extends the $5000 credit through the end of 2009. However, one cannot claim both the $7500 Federal FTHB Credit and the $5000 D.C. FTHB Credit.”

    I just verified by e-mail with our DC lobbyist and apparently it is true, which awesome cause it should be passed retroactively for ’08 and also for ’09. It’s also great because there are some ways that the DC credit might be more beneficial for a particular buyer than the Federal (which you have to pay back over time).

  • The deal with crime is that is happens everywhere and just because you move doesn’t mean it can’t happen in Bethesda.

    I grew up in a tiny town in Kansas:

    Our house was broken into at least twice. The first time they only got dirty laundry the second time they cleaned us out even taking the bedspreads off the beds. Funny thing about that one is we obviously knew the person because about a year later my class ring showed up on the door knob of my grandma’s house.

    My car was broken into at least two times. I also had shoes stolen out of my locker in highschool. My parent’s store was broken into numerous times.

    When I lived in NYC, our building was broken into and at least 3-4 apartments were vandalized. We were lucky becuase we were on the third floor and they couldn’t reach our windows easliy from the roof or the ground level. We also had a dog. My sister had her cell phone stolen right out of her hand. She tried hard to chase the kid down but he was a fast 12 year old.

    My point is that shit happens and it sucks but just because you move doesn’t mean it will stop- not that hipchick was implying that I was just speaking more generally.

    Sorry about the wallet and money.

  • Sorry-posted in the wrong spot.

  • Thanks for all the advice and thoughts! We’re in the process of trying to dig up some more money so we can put 20% down and avoid this mess altogether. We had originally planned on doing the 80-10-10 (10% down, and then one loan for 80% and an additional loan for 10% at a higher rate) but no lenders are offering that any longer. If we didn’t live in the DC area, 20% wouldn’t have been a problem, but with the very high cost of housing here, we had only been able to save 10% to put down. Now we’re hoping we can pool our assets and get a little help from our families to make it an even 20%. Nothing’s ever easy, right?

  • Ask your lender to do the math and see if an FHA loan would make sense for your specific situation. FHA has a minimum downpayment of 3% but you are welcome to put down more (the 3% minimum is due to increase in January to 3.5%). The monthly mortgage insurance premium is usually lower than conventional private mortgage insurance. The current maximum loan amount is $729,750 through December 31, 2008. For additional information on FHA loans check the government loans link at or visit Don’t be discouraged, now is a great time to buy!

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