Recently we shared a post explaining what Private Mortgage Insurance (PMI) is. We covered different reasons a home buyer may need to pay for this insurance and why. If you’re planning to buy your first home soon, there’s a good chance you’ll be required to pay for it as part of your monthly mortgage payment. But even as a first-time home buyer, there are scenarios where you won’t need to take on this extra bill to own a home.
Do I need PMI on a First-Time Home Buyer Mortgage?
To recap, PMI is insurance which protects a lender’s risk in loaning money to someone for purposes of buying a home. The more money a lender funds, the greater the risk they bear in loosing out on their investment, should a homeowner find they are no longer able to pay their monthly mortgage payment.
As many first-time home buyers tend to seek out a larger loan-to-down payment ratio, they tend to fit into the higher-risk-end of funding parameters. When a loan ratio is greater than 80% of the purchase price for a property, lenders will want PMI included. Saving $20,000 to buy a $100,000 house is a challenge for most anyone. Lending institutions understand this, and by hedging their bets with an insurance policy to protect their risk, there are loan options available for qualifying buyers with less than 20% to put down.
If you happen to have the funds needed to meet or exceed the 20% marker, even as a first-time home buyer you won’t need to cover the cost of PMI. If you start saving at a young age and seek out various ways to invest and grow your money, it’s possible to reach the magical and elusive 20% goal for a down payment. But there are other ways you can get to this figure.
As a first-time home buyer there are a variety of programs available, including grants to help fund your down payment. If you’re enrolled in a 401k or retirement plan through work, there’s a strong chance you can borrow some funds to put towards the purchase of a home, and with fewer to no tax penalties, depending on your plan. Some adventurous home buyers have even been able to get a great down payment through crowdsourcing platforms like Go Fund Me.
If you’re not able to get the minimum 20% saved but are otherwise ready to buy a home, don’t let the idea of PMI hold you back. While the insurance may not cover you from loss, it will help you achieve your dream of buying your first home if you need a viable solution to get you there. The cost of PMI is usually a small percentage of your mortgage payment, and once your home’s value appreciates to where you own less than 80% of your loan, you can look into refinancing without Private Mortgage Insurance.
Whether you need PMI or not, when it’s time to buy a home, work with a Realtor® who has a passion in helping their clients find solutions towards achieving their home dreams. Get the conversation started with Matt Haviland, give him a call today at 609-338-3773 or send him an e-mail. The Haviland Group and Keller Williams Realty are here to help you find the right home from start to finish.