Home ownership is a goal that many people look forward to reaching; however, purchasing a home is expensive. Even with financing from a financial institution, you must be able to provide a sizable down payment to be approved for a mortgage.
Many lenders require a 20% down payment on a mortgage, which can be unrealistic for some buyers. If you cannot afford a 20% down payment on your mortgage, private mortgage insurance (PMI) is a great option to help you get approved.
For example, a mortgage lender will require you to provide a 20% down-payment against the total loan amount of your mortgage. That’s about $40,000 for a $200,000 loan. However, you may not be able to afford that, and that’s where PMI comes into play. With private mortgage insurance, you can access and be approved for a loan with a down payments of much less than 20%. Additionally, once you choose to sign up for PMI, you will pay your PMI premium and your mortgage payment on a monthly basis. Choosing private mortgage insurance means you can gain access to a mortgage with a more affordable down payment.
Another benefit of private mortgage insurance is that you can request to cancel PMI monthly payments when your accumulated principal repayment amount adds up to 20% of the loan amount, so that the 80% remaining covers the value of the house. Since the lender assumes a far lesser risk at this point, they may stop monthly PMI premiums and let you concentrate on repaying only your principal amount.
One final point about the benefits of private mortgage insurance is that PMI payments may be tax deductible. Consult your tax advisor for specific details. If you would like more information about PMI and first time home buyer education materials to help you navigate the home buying process, download our First Time Home Buyer Education eBook now!