Looking to buy your next home? The time to shop rates and loans is before you start house hunting so you have a guide on what you can afford and a good strategy to help you win in this market. One thing that seems to baffle buyers is PMI. Often buyers are looking at what they can afford and forget about PMI. Private Mortgage Insurance (PMI) is a mortgage policy that protects the lender in case of buyer default. PMI allows buyers to purchase homes with conventional loans with less than 20% down payment. PMI is required for conforming, conventional loans that a buyer has a down payment of less than 20%. Once the buyer has 20% equity it is possible to cancel the PMI (talk to your lender for details).
According to the National Association of Realtors, the average down payment was 10% for all buyers. First-time buyers had an average down payment of 6% while repeat buyers averaged 14%. Below is an example of a buyer who puts down 5% with PMI and a buyer who had a 20% down payment and no PMI.
The larger down payment you can make, the lower you monthly payment will be. There are creative ways to put down 20%. If you have a 401k you can borrow against it with a 401k loan. The rates on these are typically low and will often offset PMI. Another option is to use gift funds for down payment. Some move up buyers who have equity in their current home can do a recast option if the current home sells after you buy the new home. Lastly, there are second mortgage options that will allow the buyer to eliminate PMI by using a second loan for any down payment difference below the 20%.
There are so many moving parts to buying a home it can be overwhelming to keep up with everything. That's exactly why it pays to work with a professional. If you'd like to chat and discuss mortgage options and creative ways to buy a home, give us a call or visit us on the web www.NTXHomeHub.com.