If you are new to home buying, you will soon find out that most lending institutions require that loan applicants put 20% down when applying for a mortgage, or you will need private mortgage insurance.
Of course, there are exceptions to this rule, of course, as some financial institutions will accept applications even in this turbulent home buying market with 10% down.
Buying a Home With Private Mortgage Insurance
If you do not have the 20% down payment, then you will be required in almost every instance to buy private mortgage insurance which is also known simply as PMI. Private mortgage insurance is merely protection that is purchased to preserve the interests of the lending institution in case you default on your mortgage payments.
If you apply for VA, FHA, or RHS funding, you normally will be required to buy private mortgage insurance as these government-backed loans usually do not require much in the way of a down payment. When applying for a loan, you will need to inquire about the criteria for the down payment.
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If the down payment is not substantial and you must buy private mortgage insurance, inquire about the expense. Ask what the premium each month will be and the terms. It might also be beneficial for you to ask about the requirements for dropping PMI when you reach the 20% equity threshold.
If you are applying for a second mortgage or refinancing your home, you will need to obtain private mortgage insurance if the amount of your loan is above 80% of the appraised value of your home.
When you are shopping for a mortgage, you will need to consider the following information:
- The kind of mortgage (Is is conventional, fixed-rate, FHA, or adjustable?)
- The amount of the down payment
- The time frame for the loan
- The APR
- Discount points
- Interest rate
- PMI premiums
- How long you must make payments toward the PMI
- An estimation of the escrow payment per month (includes taxes and insurance)
- The monthly payment (an estimate of the principal plus taxes, insurance, interest and PMI)
You will also have to look at the numerous fees that can be assessed with respect to your mortgage application. Fees can include charges for processing the application, the origination fee, funding charge, attorney fees, document processing fees, broker charges, and the appraisal fee.
Fees can be negotiated and you may even be able to convince the seller to assume part of the fees for the closing costs. Along with private mortgage insurance, charges can impact what you will end up paying overall.
Therefore, it is important to scrutinize them carefully. All fees are negotiable, and it can really pay dividends if you double check what you are being charged.
Go online first and contact a couple brokers or several lenders through a service like LendingTree which will find you four mortgage loan offers. That way, you can calculate what you can handle as far as a down payment.
If you have not built up enough resources in order to afford a down payment, then there are loan packages that can still make it possible for you to own a home with little down. As mentioned, many government-backed loans do not require sizable down payments.
If you are middle or lower income and cannot swing 20% down, count on including private mortgage insurance in your mortgage payments. PMI is just one of those necessary expenses you must assume for securing a loan with a lower down payment.
Have you bought a home and had to get private mortgage insurance too? Did you pay extra to try and get PMI over with as fast as possible?