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Published On: Mon, Mar 11th, 2019

Savings for a Rainy Day: How PMI is Avoidable

Rarely do people connect rainy day savings to buying a home. But, with conventional loans, private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down payment.  How to avoid PMI without 20 down is a concern for  a family’s  budget, especially when purchasing a new home with mortgage payments.

pixabay/Mashiro Momo

Why Private Mortgage Insurance Exists

Many first time home buyers are not aware of the exact consequences of not putting twenty percent of a down payment down on a new home. The backlash of the inability to put down a chunk of the money upfront gives the lender leeway in charging for private mortgage insurance.

Cash on hand is not a benefit a lot of people have in life. It often takes savings over the years to prepare to buy a home. But, people also jump head first into a mortgage without the more substantial down payment and end up with higher fees. PMI, for instance, isinsurance that protects only the lender and not the borrower.

The sole purpose of PMI is protecting the lender in case of a foreclosure. The government has no insurance or protections against how much the lender can charge for the coverage.

Clearing Up Confusion

Conventional loans and FHA loans are the two main types of lending to those purchasing homes through the loan process. Private mortgage insurance is attached to both types of loans if the percentages of the down payment are unreachable upon purchase.

Conventional loans require twenty percent down to avoid personal mortgage insuranceFHA’s loans have a lower percentage at around 3.5 percent but still needs the full amount to circumvent a PMI. If someone does not meet the demand of a down payment, over a period of mortgage payments, the percentages are reachable.

The percentage-oriented goals are attainable over time if not met initially. The pitfall of PMI is when the agreed upon percentage climbs; the borrower must request the removal of PMI fees. The lender will not automatically stop the extra charges.

Rainy Day Rundown

Steering clear of a PMI fee is possible. The obvious obstacle is the down payment. However, other ways of avoiding PMI exists.

  • Shop around for the most sensible lenders.
  • Ensure a credit score is at its highest when borrowing.
  • Pay for the PMI in full at a discounted rate.

Best of luck on your new home!!!

Author: Jacob Maslow

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    […] Savings for a Rainy Day: How PMI is Avoidable – private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down payment. How to avoid PMI without 20 down is a concern for a family’s budget, especially when. […]

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    […] Savings for a Rainy Day: How PMI is Avoidable – But, with conventional loans, private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down payment. How to avoid PMI without 20 down is a concern for a. […]

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    […] Savings for a Rainy Day: How PMI is Avoidable – But, with conventional loans, private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down payment. How to avoid PMI without 20 down is a concern for a. […]

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    […] Savings for a Rainy Day: How PMI is Avoidable – Rarely do people connect rainy day savings to buying a home. But, with conventional loans, private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down. […]

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    […] Savings for a Rainy Day: How PMI is Avoidable – Rarely do people connect rainy day savings to buying a home. But, with conventional loans, private mortgage insurance is an extra expense if a borrower does not have the initial twenty percent down. […]

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    […] Savings for a Rainy Day: How PMI is Avoidable – How to avoid PMI without 20 down is a concern for a family’s budget, especially when purchasing a new home with mortgage payments. conventional loans and FHA loans are the two main types of lending to. […]

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