Should You Get A Mortgage With PMI? Three Factors To Consider
What is private mortgage insurance and why do you need it? If you're about to purchase a home but cannot pay the full 20% down required by most loans, you'll be asked to pay an additional fee called private mortgage insurance (PMI). This fee is necessary for most mortgage companies to guarantee a loan with less than 20% down and it will stay with the loan until you have paid off the full 20%. With that in mind, is it a good idea for you to purchase a home with PMI? Here are some factors you should consider first.
How Long Would It Take For You To Save a Down Payment?
Purchasing with a low down payment and PMI is generally done with one goal: to get you into a home that you own faster rather than forcing you to rent. If you're going to be renting for a very long time to save a 20% down payment, then it may be worth it to bite the bullet; after all, though PMI may be an additional expense, it's still not as much of an expense as renting. But if it will only take you a year or two to save a 20% down payment, it may not be worth the extra cost.
Can You Qualify for Any Other Programs?
There are some programs that don't involve PMI. Purchasing a foreclosure through a government agency, for instance, often lets you forego PMI entirely. Veteran's loans also let you forego PMI. If it is possible for you to qualify for other programs, that's usually best — especially because these other programs also usually have lower requirement standards.
How Much Will Your PMI Fee Be?
PMI isn't a set amount. It varies depending on your personal credit rating and the amount of your down payment. If you're only putting 5% down and your credit score is poor, you could get a rate of up to 1.5%. This is substantial — it essentially increases your effective mortgage rate by that amount. On the other hand, if you're putting 15% down and your credit score is very good, you could be looking at a PMI of 0.3% or even less. This isn't that substantial.
Purchasing a mortgage that includes PMI is a very common practice, but you should still consider the factors listed. Above all, you should always ensure that you have enough money to make your monthly housing payments comfortably — everything else is usually in the details.
For more information, contact local professionals like Assurance Financial.
