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Northern Virginia Alert | What Is PMI? Should Home Buyers Avoid It Or Take Advantage Of It?

Written by Posted On Tuesday, 02 May 2017 12:44

When it comes to buying a home in Northern Virginia or other parts of the country, whether it's your first home or your tenth, you always want to know all the important facts. There are a large number of mortgage programs available that allow buyers to purchase a home with a down payment as low as 0%. You don't need 20% down as many people mistakenly believe. 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 6%, while repeat buyers put down 14% (no doubt aided by the sale of their home). 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.”

With housing prices heating up and rental rates going up between 5-7% each year in the Northern Virginia real estate market putting off home ownership until you have a huge down payment is probably not the best financial choice for most people to make.

Bottom Line

If you have questions about whether you should buy now or wait until you’ve saved a larger down payment, let’s get together to discuss our market’s conditions and to help you make the best decision for you and your family.

 

Ask about our $5000* Guaranteed Savings program. Yes, this program even applies during this Seller's market for my VIP Home Buyers'

Worried about the down payment? Stop! Ask about special mortgages with little or even NOTHING Down! Stop paying your landlord's mortgage and own your own home in Northern VA today!

For more real estate news, tips and trends checkout our website ComeHomeVirginia.com & follow us on Facebook

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