What is PMI? PMI stands for Private Mortgage Insurance. If you do not have 20% to put down as a downpayment on your new home, you will become familiar with this term fairly quickly! PMI is insurance that a lender requires you to pay each month if you do not have 20% down. This helps cover your lender in the event you default on your loan. And yes, it's a monthly expense to you.
Ways to avoid paying PMI? Put 20% down! Or...let's get realistic...f you are like a lot of people, especially first time home buyers, it can be challenging to find 20% just sitting in your bank account waiting to be tied up in your new home.
Fact - once you have your mortgage paid down to owing 80% or less, the PMI drops off and you do not have to pay it anymore. How can you get to this stage quicker?
Since we are in a buyer's market, this may be helpful to you...
I will use the following story just for this example...
Let's say you are wanting to buy a home in Brookside. You work with a buyer's agent that is an Accredited Buyer's Agent (ABR) - we are - and we work hard on your behalf to negotiate the lowest purchase price possible. We do this for all of our buyer clients. With the amount of homes available, buyer's can be more picky over which home they purchase. This is making some home seller's anxious and some will sell their home lower than market (appraised) value.
Let's say after six months of living in your home, you decide to hire an appraiser to get your home appraised. This will cost you a couple hundred dollars. Let's say you purchased it for $200,000, due to the seller being motivated, but it appraises for $250,000. Boom, you now have black and white documents to take to you lender and show that your homes mortgage is $50,000 under appraised value. You now have a balance of under 80% owed on your home and the PMI drops off saving you around $100 a month on your mortgage payment.
Please feel free to e-mail us you story or questions. We would love to hear from you!