April 24, 2018 | Bob Myers
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:
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 me. I'll explain our market conditions and help you make the best  decision for you and your family.

Please consider The Myers Team your resource for all things real estate.  We have over 30 years of real estate experience, specializing in the Montgomery County area.  If you are refinancing, want a recommendation, need a service provider or just have a home related question, please give me a call at 301-910-9910 or email me at bobmyersteam@gmail.com.
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