PMI Tip of the Day!
You’re really interested in buying a house, but, oh shoot, you don’t have 20%. As you hopefully know, you do NOT need to put 20% down on a house. Many loans can go as low as 3 or 3.5% down (and VA loans can sometimes be 0%!) What happens instead, though, is you’ll incur a PMI (private mortgage insurance) payment if you don’t put 20% down.
How could you do this to me, PMI?
But wait! There’s a way you could mitigate the PMI payments AND avoid putting 20% down. If you’re getting a conventional loan, some companies will let you pre-pay your entire PMI amount at the closing which is almost always going to be way cheaper than putting a full 20% down.
Umm little math help please?
Say you’re buying a house for $300,000 but you can’t swing the 20% down payment ($60,000). Instead you put down 5% ($15,000) and you have to pay PMI for a few years (until you pay up to 20% off of your loan). Using a little online calculator from nerdwallet.com, the PMI (per month) for this purchase would be about $119 (which will go up and down slightly over time and is affected by home values and your credit score over time). Due to fluctuation in the market, you may be paying PMI for 5, 6, 7, 8 years which could run you $7000-12000 over that time! (!!) What you can do instead of paying the $119 (give or take) a month is speak to your lender and ask if you can pay off the PMI right up front at the closing. They might offer you a good deal – maybe pay $3000 or $4000 up front and avoid the fluctuations in the market. If you plan on staying in your house for several years, it’s always a good idea to see if you could save some money by pre-paying the PMI off in advance. Don’t hesitate to ask your lender all these questions if you’re not putting 20% down!
TL;DR: Ask questions, (hopefully) save money!
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