Do You Know What PMI Is?
If you plan on buying a home in Champaign - Urbana and want to go with a low down payment loan, are you familiar with a type of insurance called Private Mortgage Insurance (PMI)? There are plenty of mortgage options that offer down payments under 20%. But if you plan on getting one of these types of loans, it’s a good idea to look into and educate yourself about Private Mortgage Insurance. How can Private Mortgage Insurance help you buy a home in the Champaign - Urbana area?
Here’s how Freddie Mac defines PMI:
“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.”
The simple explanation is that the buyer pays the monthly premiums for the PMI insurance policy, and the lender is the beneficiary. As Freddie Mac explains:
“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.”
The average down payment last year for all home buyers across the nation was 10% and 5% for first time buyers, according to the National Association of Realtors (NAR). They also reported that the average down payment for repeat buyers was 14%. In other words, PMI didn’t stop these buyers from getting loans.
The larger the down payment, the lower your monthly housing cost will be, but as Freddie Mac says:
“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.”
Are you planning to buy a home in Champaign County and have questions about home loans and PMI? Please contact us today for more information.
You can rely on Rose Price to help you understand the home buying process in Champaign County. We can help you find the perfect home in Champaign- Urbana. Our powerful home search feature can help you start the process. Make sure to check back on our blog every week for more Champaign - Urbana real estate advice. Follow us on Facebook!
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