Real Estate - Real Estate Investment

For decades, when it came to real estate investing, the way to finance a property purchase was 80-20, 20 percent down, 80 percent on loan. Certainly, there have been many who put more down, but 20 percent was considered the bare minimum. Happily, things have changed.

There are now a dozen or more ways to finance a property purchase, whether for pure investment or primary residence. One common method is to have more than one loan, usually in the form of a second mortgage. The buyer puts 5 percent in, and effectively borrows the other 15 percent on a separate loan, usually at a much higher interest rate.

While it’s nice to invest less for the same property, the downside is not limited to the higher interest rate on the second mortgage loan. Since the buyer doesn’t meet the standard 20 percent minimum, lenders almost always require PMI (private mortgage insurance). Fees are usually hefty.

Though it’s theoretically possible to have the lender remove the PMI requirement after enough payments have been made it rarely happens. In theory, once the loan(s) have been paid down so that the LTV (loan-to-value ratio) is at 80 percent ? usually by a combination of paying down the second mortgage and appreciation of the value of the property ? the lender will be willing to consider removing the PMI cost from monthly payments. Most often, before that happens, the loan is refinanced or the property sold.