Although the decision to own your home is exciting, it is definitely a process to get the best end result for you. Homeownership is an important and expensive investment that requires most people to save for a number of years. For most people, the journey to home ownership begins with making a down payment so they can take out a mortgage. However, if you don’t have the full 20% down payment, Private Mortgage Insurance (PMI) can help.
An Overview of Private Mortgage Insurance
“What is PMI?” is a question you may have as you start the home buying process. In most cases, financial institutions will require that prospective home buyers make a down payment of at least 20% of the property value. However, this amount of down payment is beyond the reach of some potential buyers.
PMI, Private Mortgage Insurance, is a financial product that is designed for people who want home ownership but do not have the full 20% down payment to produce at signing. PMI is a type of insurance that is offered to prospective home buyers that allows for such buyers to access a mortgage as well as protects lenders if borrowers default on the loan. PMI is offered by many financial institutions and is an added premium onto your monthly mortgage payment that helps you work towards the 20% down payment-- and can be removed once you hit that financial milestone.
Benefits of PMI for Home Buyers
Beyond understanding what PMI is, buyers should familiarize themselves with the benefits of this insurance product. One of the most outstanding benefits of PMI is that it allows home buyers to access mortgages with a more affordable down payment. One does not need to have the full 20% of the property value saved prior to getting a mortgage.
Since PMI is meant to protect the lender against defaulters, you can end your PMI payments once the principal repayment reaches 20%. As a lower risk at this point, the borrower can focus on paying the principal amount of the loan to the financial institution. Another important advantage of PMI to consider is that the related payments may be tax deductible depending on the situation.
PMI is a great insurance tool for first time home buyers to help make their home ownership dreams come true. If you’re interested in learning more about Private Mortgage Insurance and what is PMI, download our eBook now!