Ever Had This Question?

By
Real Estate Agent with Keller Williams Realty - Topsfield, MA 92593

I'll bet you've had this question dozens of times, especially when a buyer is receiving a mortgage through the FHA (Federal Housing Authority). I was brought up with the notion that you had to have a 20% down payment when purchasing a home. That and, 1 weeks pay = 1 months rent/mortgage. Those days are long gone especially for 1st-time buyers. 

Some lenders will allow lower down payment loans for conventional loans but will charge a higher interest rate. Either way, if you are a buyer make sure you understand what PMI is.

Here is a good graphic and information put out by the folks at KCM

 

 

What Is Private Mortgage Insurance (PMI)?

What Is Private Mortgage Insurance (PMI)?

When it comes to buying a home, whether it is your first time or your fifth, it is always important to know all the facts. With the large number of mortgage programs available that allow buyers to purchase homes with down payments below 20%, you can never have too much information about Private Mortgage Insurance (PMI).

What is PMI?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

 As the borrower, you pay the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.” 

According to the National Association of Realtors, the average down payment for all buyers last year was 10%. For first-time buyers, that number dropped to 5%, while repeat buyers put down 14% (no doubt aided by the sale of their homes). This just goes to show that for a large number of buyers last year, PMI did not stop them from buying their dream homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

What Is Private Mortgage Insurance (PMI)? | Keeping Current Matters

The larger the down payment you can make, the lower your monthly housing cost will be, but Freddie Mac urges you to remember:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, meet with a professional in your area who can explain your market’s conditions and help you make the best decision for you and your family.

Posted by

I pray that God our Father and the Lord Jesus Christ will be kind to you and bless you with peace

2 Thessalonians 1:2

 

Doug Dawes REALTOR® AWREP

Broker Associate

KELLER WILLIAMS REALTY 

49 Main Street
Topsfield, MA 01983
 978-887-3995  ~ Office
 978-270-3037  ~ Cell
 DougDawes@KW.com

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Rainmaker
3,035,642
Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning Doug. I think you have done a great job with this. Well written and explained.

Apr 11, 2018 06:29 AM #1
Rainmaker
2,737,470
Kristin Johnston - REALTOR®
RE/MAX Realty Center - Waukesha, WI
Giving Back With Each Home Sold!

Great information.  Thanks for sharing it with us and enjoy your Wed !

Apr 11, 2018 06:53 AM #2
Rainmaker
589,342
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Good Morning Sheila Anderson 

Thank you for your nice words. 

Apr 11, 2018 08:44 AM #3
Rainmaker
589,342
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Good Morning Kristin Johnston - REALTOR® 

PMI is not really understood by buyers. This graphic helps

Apr 11, 2018 08:45 AM #4
Ambassador
1,587,959
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

I had to have PMI for the first home I bought as a single woman. At that time, after several years of consistent payments and more equity - I was able to apply and have it cancelled. Not sure if that applies any longer...

Apr 11, 2018 03:53 PM #5
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Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

For 37 years many of my buyers have been Veterans getting a 100% loan and the FHA buyers getting a high LTV too. I love seeing a conventional buyer as they usually have a little money and higher credit scores.

Apr 11, 2018 08:01 PM #6
Rainmaker
589,342
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Hi Debb Janes EcoBroker and Bernie Stea JD 

I'm not sure whether PMI can be canceled anymore. It used to be once you reached an 80/20 or 70/30 LTV

Apr 12, 2018 05:30 AM #7
Rainmaker
589,342
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Good Morning Debbie Reynolds 

The thing I get concerned about is paying more than 1 week's income for 1 month's housing cost. I know people who pay 40 or more % in housing costs.

Apr 12, 2018 05:32 AM #8
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Robert Vegas Bob Swetz
Realty ONE Group - Las Vegas, NV
Las Vegas Henderson Homes for Sale

Hello Doug, 

Yes I have and very well written post I might add!

Apr 15, 2018 09:39 AM #9
Rainmaker
589,342
Doug Dawes
Keller Williams Realty - Topsfield, MA - Georgetown, MA
Your Personal Realtor®

Good Morning Robert Vegas Bob Swetz 

Thank you for your kind words. Enjoy your Vegas day. 

Apr 16, 2018 08:05 AM #10
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Doug Dawes

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