Why Would You Put 20% Down?  Avoid PMI with Less!

 

In today’s world, PMI is considered a bad word in mortgage financing and home buying, and for good reason.  After all, PMI doesn’t protect a borrower, it protects a lender, and in markets like we’ve recently seen, most of which are appreciating at a high rate, loans don’t seem to have high enough risk to warrant the additional cost of PMI.

To avoid PMI, the traditional path is to come up with 20% down payment.  This is a solution, but as homes get more expensive, that 20% is becoming a larger and larger dollar amount.  With the median US home price coming in at the mid-$300s price point, each 5% increment is nearly $20,000.

The good news?  There’s a solution that works extremely well, and for buyers with good credit, makes putting 20% down seem silly.  For those who can benefit, there’s an opportunity to keep money in the bank, get the dream home, and avoid that nagging monthly PMI!  In this video I break down exactly how it works so that buyers can take advantage, and agents can guide their buyer toward the best possible loan options.  In fact, when using this strategy, 20% down seems downright silly.

Here’s how it works:

 

A few things are important to keep in mind – this strategy works best with 15% down (but can also be applied to keep even more money in the bank with 10% down).  It also only works well when the buyer/borrower has a good credit rating – this is due to the cost of PMI varying based on credit score.  Situations vary, and there’s a different solution for every buyer, so it’s important to weigh all options and make the right decision for each borrower’s unique solution, but, it’s important that when it comes to PMI, we stop talking in terms of “20% down or bust!”.
A lot of options exist, and sometimes the right loan option involves a little of creativity and know how to set customers up for success!
Posted in blog, buyer tips, Conventional Loans, Mortgage FAQ and tagged , ,