If youâ€™re looking for a home, youâ€™ve probably heard the term â€œPrivate Mortgage Insurance,â€ or PMI.Â This the insurance you pay on a loan when you have a low down payment, and itâ€™s to protect lenders and investors from defaults on a mortgage loan.
When you have to have PMI:
You typically are required to have mortgage insurance if you put down less than 20% of your homeâ€™s purchase price.Â Thatâ€™s why you need to weigh the benefits before you take the low-down payment loan you qualified for â€“ once you take mortgage insurance into account, you may realize itâ€™s more expensive over the long run.Â You can spend over a thousand a year on PMI alone, and frankly thatâ€™s not an uncommon figure.
How it Works: the Pros and Consâ€¦
The most straightforward way to get rid of PMI is to either pay the 20% down payment up front, or work to pay your mortgage down to below the original 80% of your homeâ€™s value.Â You can then request to have your PMI removed, so long as you maintain a good payment history.Â Details of requirements from the Consumer Financial Protection Bureau can be found here.
The nice thing is, PMI can allow you to purchase a house if the perfect one comes up, even if you canâ€™t put 20% down right away.Â So there are benefits as well!Â We just recommend you focus on saving and paying down your mortgage until you can get rid of it â€“ if youâ€™d like a few tips to help you save money, check out a blog here for some help!
As always, give us a call if youâ€™re looking for a lender!Â Weâ€™re faith and family based, and weâ€™d love to help you find the perfect home for you and your family.
The Christian Mortgage Mom