Can I add PMI to my principal balance when I take out a mortgage?
There are few different types of MI you can choose from, they are: Borrower-Paid Monthly (this is what most people think of when they think MI) Borrower-Paid Single Premium (you may have QM issues on this) Lender Paid Single Premium Split Up-front and Monthly The only way to determine which option will ultimately cost you less is to come up with a time estimate or range for how long you anticipate you will hold this mortgage, then look at each option over that time, and see where they fall. To answer your question about the single-premium being added to your loan, this typically does not happen (outside of FHA/VA).  The reason for that is you would now have 90%+ financing and fall into a new pricing bracket, if not being disqualified altogether.  What is far more typical is the use of premium pricing to pay this up-front premium.  Premium pricing is where you take a lender credit in exchange for an elevated rate; it is the exact opposite of paying points to buy down your rate. For example:  say a zero point rate is 4.25%, and you have monthly MI of say .8%.  Your effective rate would be 5.05%.  It may be possible to use premium pricing at an elevated rate of say 4.75% to pay your MI up front--now your effective rate is the note rate of 4.75%.  This is how a single premium can save you money.  Keep in mind though, the 4.75% will be your rate for the life of the loan, and in the other scenario, once the MI drops off, the effective rate will go back down from 5.05% to 4.25%.  This is why it is critical to know your estimated length of financing.
Congratulations on your bonus may many more come your way. I am having a bit of trouble following your numbers but it seems you are considering PMI for the life of your loan.  Once you get below 20% loan to value, you can petition the mortgage company to remove the PMI (with conventional loans; VA and FHA have lifetime PMI). If it was me, I'd do one of two things.  Both involve paying off the student loan now.  The savings from the student loan payment will assist you in helping you meet one of the two goals below.  Also both involve getting a 15 year fixed. The first would be to buy the house now, and work like crazy to get rid of the PMI.  My goal would be to get rid of this within 18 months.   The second would be to save up enough cash for the 20% down and then buy the house.  You'd miss out on the house you are looking at, which is kind of heartbreaking.  Who is to say that a better home does not come along at the same price?  My goal would be to have the downpayment in 9 months, and really try to have it in 6 months. Being an old guy that has experience how much of a virtue patience is, I'd recommend the second option. "First to actually answer the question ""how long at these rates/payments?""-  These is nothing magic or nefarious about what the bank is doing. They add accrued interest and take your payment off the new total.  I'd make higher payments to the 8.75% debt until it's gone, $100/mo extra and be done. The first debt, if you bump it to $50 will be paid in 147 months, at $75/mo, 92 months. Everything you pay above the minimum goes right to the principal balance and gets you closer to paying it off.  The debt snowball is not the ideal way to pay off your debt. Say I have one 24% credit card the bank was nice enough to give me a $20,000 line of credit on. I also have 20 cards each with $1000 in credit, all at 6%. The snowball dictates that the smallest debt be paid first, so while I pay the minimum on the 24% card, the 6% cards get paid off one by one, but I'm supposed to feel good about the process, as I reduce the number of cards every few months.  The correct way to line up debt is to pay off the (tax adjusted) highest rate first, as an extra $100 to the 24% card saves you $2/mo vs 50 cents/mo for the 6% cards. I wrote an article discussing the Debt Snowball which links to a calculator where you can see the difference in methods. I note that if the difference from lowest to highest rate is small, the Snowball method will only cost you a small amount more. If, by coincidence, the balances are close, the difference will also be small.  The above aside, it's the rest of your situation that will tell you the right path for you. For example, a matched 401(k) deposit should take priority over most debt repayment. The $11,000 might be better conserved for a house downpayment as that $66/mo is student loan and won't count as the housing debt, rather ""other debt"" and part of the higher ratio when qualifying for the mortgage. If you already have taken this into account, by all means, pay off the 8.75% debt asap, then start paying off the 3% faster. Keep in mind, this is likely the lowest rate debt one can have and once paid off, you can't withdraw it again. So it's important to consider the big picture first.  (Are you depositing to a retirement account? Is it a 401(k) and are you getting any matching from the company?)" The PMI rate is calculated at the time your mortgage is underwritten to be terminated at the point where you have 20% equity in your home.  It is calculated based off of default risks based on your current equity value at the time of the loan.  So if you got your mortgage before the banking crisis those risk charts have changed dramatically and not in your favor. So lets say you have a 100k home which you put 10k down so you have a mortgage of 90k.  Since you have accumulated an additional 5k equity so payoff value is now 85k.  If you refinance your mortgage and the home values in your area have dropped 15% you now are borrowing 100% of the value of your home.  So you have higher risk from being at 100% as opposed to 90%.  And the PMI is for the 20% of equity you do not have that the bank can not expect to recover.  So when you originally bought the house your PMI pay out was 10k.  At 85K value and 100% borrowed the PMI payout will be closer to 18k.  While you may still be able to sell your home for the original value when they do the refinance calculations they use what your area has trended.  If that is the case you maybe be able get an actual appraisal to use but that will come out of your pocket. *Disclaimer: These are simplifications of how the whole complex process works if you call the banker they can explain exactly why, show you the numbers, and help you understand your specific circumstances.  * "Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit.  The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be ""other than house debt"" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment.  PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering.  I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low.  By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?" It could be a couple of things besides extra principal: I seem to remember hearing that some (shady?) lenders would just pocket extra payments if you didn't specify where they were headed, but I've also been told that this just isn't true. "Let's start with income $80K. $6,667/mo. The 28/36 rule suggests you can pay up to $1867 for the mortgage payment, and $2400/mo total debt load. Payment on the full $260K is $1337, well within the numbers. The 401(k) loan for $12,500 will cost about $126/mo (I used 4% for 10 years, the limit for the loan to buy a house) but that will also take the mortgage number down a bit.  The condo fee is low, and the numbers leave my only concern with the down payment. Have you talked to the bank? Most loans charge PMI if more than 80% loan to value (LTV). An important point here - the 28/36 rule allows for 8% (or more ) to be ""other than house debt"" so in this case a $533 student loan payment wouldn't have impacted the ability to borrow. When looking for a mortgage, you really want to be free of most debt, but not to the point where you have no down payment.  PMI can be expensive when viewed that it's an expense to carry the top 15% or so of the mortgage. Try to avoid it, the idea of a split mortgage, 80% + 15% makes sense, even if the 15% portion is at a higher rate. Let us know what the bank is offering.  I like the idea of the roommate, if $700 is reasonable it makes the numbers even better. Does the roommate have access to a lump sum of money? $700*24 is $16,800. Tell him you'll discount the 2yrs rent to $15000 if he gives you it in advance. This is 10% which is a great return with rates so low. To you it's an extra 5% down. By the way, the ratio of mortgage to income isn't fixed. Of the 28%, let's knock off 4% for tax/insurance, so a $100K earner will have $2167/mo for just the mortgage. At 6%, it will fund $361K, at 5%, $404K, at 4.5%, $427K. So, the range varies but is within your 3-5. Your ratio is below the low end, so again, I'd say the concern should be the payments, but the downpayment being so low.  By the way, taxes - If I recall correctly, Utah's state income tax is 5%, right? So about $4000 for you. Since the standard deduction on Federal taxes is $5800 this year, you probably don't itemize (unless you donate over $2K/yr, in which case, you do). This means that your mortgage interest and property tax are nearly all deductible. The combined interest and property tax will be about $17K, which in effect, will come off the top of your income. You'll start as if you made $63K or so. Can you live on that?" You understand it perfectly right. The thing with PMI is that when your home price rises (or your loan balance goes down) so that your loan balance is below the 80% of the current house price, the PMI goes away. The higher rate - does not. So, no-PMI option is much better. To the bank, as you suspected. Your calculations are correct. With the PMI you'll pay less interest, and more balance. As to the tax deductions, interest can be deducted, but the PMI - no (starting of 2012, to the best of my understanding, at least). See details here, consult a tax professional for more current information. Private Mortgage Insurance. It's money that you pay to an insurance company to make the lender whole in the event that you go into default. It's a real waste of money for you. If you are trying to finance more than 80% of the value of a home, a standard mortage is likely to require that you get PMI. Nowadays there are other options which involve paying substantially more interest.