Posted: 2019-10-05 | Author: Ricahrd Simon
When financing the purchase of a home, it is ideal for buyers to come up with at least a 20% down payment. With 20% down, there is less to finance, which means a lower monthly mortgage payment. You also take ownership with more equity in the home, which is an asset you have available to borrow against later on in the case of an emergency. Finally, those who put at least 20% down do not have to purchase private mortgage insurance (PMI), a product that insures the lender against the risk of the borrower defaulting.
Although there are a lot of good reasons to go into a home purchase with a 20% down payment, this goal is very difficult to reach for a large number of prospective home buyers. It could take years to save up enough, and a buyer is generally better off getting into a house sooner, even if they have to do it with a lower down payment. But what about the private mortgage insurance?
PMI is extra money every month tacked onto the cost of the loan, just to provide insurance to the lender. This is like money wasted, and it could add up to thousands of dollars if you have to pay for this insurance for even just a few years.
What Mortgage Insurance Options Are Available When I Put Less than 20% Down?
If you cannot come up with 20% to put down to buy a house, you have a few different options for dealing with the mortgage insurance. The first option is to bite the bullet and pay the PMI. Yes, it is essentially money being thrown away, and it can be $100 or $200 or more every month; but it also gets you into a home sooner, and it does not have to stay around forever. You can have the private mortgage insurance removed after you have obtained at least 20% equity in the home.
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