Mortgage Insurance Changes Equal Money in Your Pocket

A row of connected brick houses.
With a recent announcement from MGIC, a leader in the mortgage insurance industry, it could very well be possible in the coming months that you can get a conventional loan on a 3- or 4-unit property with only 5% down if the property is your primary residence.  Yes, you read that correctly!
Right now, there’s an option to get into a 3- or 4-unit property as your primary residence with a 3.5% down payment, but that’s an FHA loan, and the mortgage insurance will never go away as long as you have that loan.  If you want to avoid an FHA loan, you’re required to put down 25% – and when you put that much money down, mortgage insurance isn’t required.
MGIC has floated out the possibility that they’re willing to insure a 3- or 4-unit property (with it being your primary residence) if you put as little as 5% down.  Now, just because they’ve signaled their willingness to do this doesn’t mean that a bank will do it – but if someone like MGIC is willing to insure it, banks will most likely follow suit (for the simple reason that someone like MGIC is taking on the risk).
This development can mean two significant things (if the banks follow suit):
(1) You can get into a multi-family property (that can possibly cash flow to the point that it’s paying your entire mortgage OR MORE) for only 5% rather than 25% – on a $300,000 property, that’s the difference between $15,000 (5%) and $75,000 (25%).
(2) Because it’s a conventional loan, once you hit a certain threshold in equity (that remains to be determined – will it be 80% or 75%), you can drop the mortgage insurance.
To sum up: you can save, in the example above, $60,000 in down payment AND reduce your monthly payment once you’ve hit the equity threshold.  That’s a multifaceted bonus on a multi-family property!

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