Mortgage insurance allows financing with little or nothing down

First-time homebuyers in Hawaii with steady incomes have long faced a cash crunch when trying to come up with enough money for a down payment. That’s where private mortgage insurance comes into play. It offers up to 95 percent financing and, in some cases, 100 percent financing with little or nothing down.

So the mortgage industry has softened the blow today with numerous options that allow former renters to spread their legs wider. A borrower buys private mortgage insurance to protect the lender in case of default. As of September 2006, at the median prices in Hawaii is $610,000 for a single-family home and $287,000 for a condominium, a person taking out 100 percent financing would be responsible for monthly PMI payments of around $500 and $200, respectively.

Homebuyers also are responsible for homeowners’ insurance, which generally ranges from about $100 to $150 a month for single-family homes, and is covered through association dues for condos and townhouses. Also, Hawaiian homebuyers must pay real property taxes, which for median-priced homes and condos are $2,062 and $863 a year, respectively.

Here are a few of the financing options available to home-buyers, with closing costs, which range from 0.5 percent to 2 1/2 percent of the total mortgage, to be paid separately:

Eighty-10-10 loan: An 80 percent first mortgage, 10 percent second mortgage at a higher interest rate, and 10 percent cash that is used for the down payment. Eliminates the need for private mortgage insurance.

Eighty-20 loan: An 80 percent first mortgage, and 20 percent second mortgage at a higher interest rate. Also eliminates the need for private mortgage insurance.

Forty-year amortization, 15-year maturity loan: Offers lower monthly payments because the loan theoretically is stretched out over 40 years, but the balance of the loan comes due after 15 years in the form of a balloon payment.

Typically, the life of a loan in Hawaii is 12 years. But if a homeowner still owns the property after 15 years, that person could refinance the loan or even sell the home.


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