PMI vs. Mortgage  Insurance:  When you are buying a  home and putting less than 20% down the lender will  require you to carry mortgage insurance. This insurance  is sometimes called PMI (private mortgage insurance) or  MIP (mortgage insurance premium). Whatever the acronym,  it is money that is going to the lender or financial  institution instead of to the principal on your loan.  Those whose credit scores are 700 or above have the  option of taking out a second mortgage. Eighty percent  would be borrowed from the first lender; the second  mortgage account would depend on the amount of the down  payment. Five percent would require a 15% down payment;  10% down would require a 10% second; 15% down would  require a 5% second. The lowest rate will still only be  obtainable with 20% or more down. Lenders are beginning  to judge loans much more guardedly because of the  current credit crunch. Their experience tells them that  borrowers who put 20% down on home loans are more likely  to stay current on their loans.
 
As you  speak with your mortgage planner and find that your  credit score is favorable, you should run your numbers  with both mortgage insurance and a second loan. The second loan interest rate will always be higher than the  first. Sometimes it is one point; sometimes it is even  two points + but when you run the payments side by side  you will usually find that they are almost identical.  When you run an amortization schedule on the  payments for both plans you will find that you will  always be ahead by using the second mortgage since you  are paying more toward the principal every month.  Mortgage insurance is based on risk factors: the down  payment amount; your credit score and the amount of  coverage requested by the lender.
 
It is  important, however, not to deplete your reserve account.  Dave  Ramsey, a financial writer and talk show host,  suggests that we should have a minimum of six months  cash reserve at all times to cover any possible job loss  or loss of income for any other reason. (And he is also  going to have you wait to buy till you do that that  emergency fund and the 20% down)
 
Thanks for  your questions and keep them coming!  

Geoffrey Davis
 214-529-9622
Davis Family Lending, LLC