Do you want to get into a home but cannot afford a 20 percent down payment? You are not alone. Those who do not want to delay a purchase and wait until they have 20 percent of a home's purchase price can get into a home through means that may require additional fees and insurance products to protect the lender.
A PMI is often required as part of a conventional home loan for many. It can allow those making a minimal down payment to get into their first home, in The Lakes or another community, and begin to build equity.
Understand more about PMI and cancelling PMI to determine whether or not obtaining a conventional loan with a small down payment is right for you.
What to Know About Private Mortgage Insurance
Private mortgage insurance or PMI is required by lenders when a home buyer wants to put down less than 20 percent toward the purchase of a home when approved for a conventional home loan. Lenders want the extra security from the PMI policy to safeguard them in the case of a default on a loan or a foreclosure on a property. Homeowners may have to have a PMI in instances when they are refinancing a mortgage with home equity of less than 20 percent. PMI payments do not go into building equity in a home.
A borrower's credit score may be a significant factor in determining interest rates on this loan. The fees of private mortgage insurances vary. PMI premiums may or may not be tax-deductible. Associated tax deductions have changed periodically. Other factors to determine the rate received include:
- The down payment amount
- The insurer
In general, a borrower will have to pay monthly for the majority of PMI policies. There may be an upfront payment option with specific policies. Some lenders may allow a borrower to pay the PMI as a cash lump sum at closing. PMI premiums may be anywhere from $30-70 for every $100,000 borrowed from a lender every month. A borrower can pay up to $210 every month on a $300,000 home, based on this estimate.
When Does PMI End?
Homeowners should be aware that PMI payments will eventually come to an end. When the outstanding balance on a loan amounts to only 78 percent of the original value of a home, a lender will automatically cancel the PMI. Homeowners may have to wait several years for this to happen. Buyers may request the cancellation of PMI payments when the loan-to-value ratio (LTV) is 80 percent. As an example, if the home was worth $100,000, and an owner owed $80,000 or less, the owner could ask for the mortgage insurance premium to be cancelled.
There are other types of home mortgage products. When approved for a government loan, the loan-to-value ratio (LTV) will not impact the requirement for mortgage insurance. FHA loans require both an up-front mortgage insurance premium (MIP) and an annual premium. Therefore, it is necessary for buyers to look into the types of insurance and potential fees associated with making a down payment of less than 20 percent.
Potential homebuyers may be excited at the prospect of purchasing a home and overlook the small print when it comes to financing a purchase. Homeowners who cannot put down 20 percent may be able to be approved for a mortgage and not be required to pay for mortgage insurance. The “Affordable Loan Solution”, a VA loan, Physician loans and some credit unions may be other ways to afford a home without paying PMI.
Consider all of the mortgage products available to determine which ones may best suit your specific situation.
Debbie Drummond is a Full Time Realtor with over ten years experience in the Las Vegas Real Estate Market. She and her team of Real Estate Pros offer the highest level of service. If you’re buying or selling a Las Vegas home, call (702)354-6900 or email Debbie@LVHomePro.com. They’ll be happy to assist you in your move.