No matter how many homes you’ve purchased, you should always arm yourself with all the facts. A large number of mortgage programs now allow buyers to buy homes with less than a 20% down payment, you should know all the facts a of Private Mortgage Insurance, often referred to as PMI.
Freddie Mac defines PMI as:
“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%. Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”
As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:
“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.”
According to the National Association of Realtors, the average down payment for all buyers in 2018 was 13%. Clearly, PMI did not stop buyers achieving their dream of buying a new home. Here’s an example from Keeping Current Matters of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:
If you have any additional questions, I am happy to help. I haves also worked with some great lenders that can detail all of your options and help you make these best decision to you!!