Seventy-five percent of people don’t put 20 percent down when buying a home, or at least that’s been my experience in mortgage lending for the past 15 years. While more money down is always a good idea, many people don’t know that it isn’t required, especially if you’re a first-time home buyer. It’s time to talk TMI (Too Much Information) about down payments, PMI (Private Mortgage Insurance) and refinancing.
- Three Percent Down
Speaking of PMI, I equate this to paying rent on top of your mortgage. If you don’t put 20 percent down, you’ll have to pay PMI. The dollar amount of PMI is affected by your credit score, your down payment and your debt-to-income ratio. There are three routes to consider if you have to get PMI:
Monthly Mortgage Insurance
This is a monthly, all in one bill that you pay with your mortgage and taxes if you don’t put 20 percent down. Once you reach the threshold of having 20 percent of your mortgage paid off, you’ll no longer have to pay PMI. Make sure you stay in touch with your mortgage provider when that time nears as dropping PMI from your bill may not always be an automatic process.
Lender Paid Mortgage Insurance
With this route, you avoid having the monthly mortgage insurance payment, but your interest rate will go up. This is typically a better option for those that will be in their house short-term.
Single Paid Premium
This is a one-time fee, which could be as low as 1 or 2 percent of the loan amount on top of your down payment. This option works best if you plan to be at your home for the long haul, meaning 8-10+ years.
- Refinancing & PMI
If you are a first-time home buyer, you can put as little as three percent down through first-time home buyer programs. There are income caps on the buyer programs, but when going through these, you can also receive a reduced PMI rate.
What many people don’t know, is that if your home’s value has increased more than 20 percent and you’re currently paying PMI, if you refinance, you may actually be able to get rid of your PMI payment. If the increased value in your home weighed against the amount you’ve paid on your mortgage is more than a 20 percent difference, the PMI payment is no longer necessary.
Are you considering a move in the near future? It’s always best to start at the bank so that you can approach a realtor with a pre-qualified price point. Contact me today to set up a time to chat.
Andy Newman is a Mortgage Loan Officer for Bank Iowa in the Greater Des Moines area with over 15 years of mortgage lending experience. His NMLS number is 38382 and Bank Iowa’s company NMLS number is 673681. To learn more, visit bankiowa.bank, Member FDIC, Equal Housing Lender.