If you are not able to put a large down payment on a home, you may be required to purchase private mortgage insurance (PMI). This may force you to make some difficult financial decisions. Should you pay for the PMI? Or should you look for a way to avoid it? Will it be largely beneficial or harmful? Following are some pros and cons to consider.
Pros of PMI:
- The most obvious benefit of paying for PMI is that it allows you to reduce your down payment and keep your finances more fluid. This can be important if you are just getting started in life and do not have a large pile of savings.
- Another benefit of PMI is that it may make it easier for you to purchase a home now rather than waiting. In a market with swiftly rising housing prices, snapping up a home before it has a chance to skyrocket in price can make PMI more than worthwhile.
- Likewise, if you can obtain a more competitive mortgage rate now than you expect to in the future, this might offset the PMI cost. So even with the extra bill, your monthly expenses might even out or be lower over the long run.
- If you have other debts (such as student loans or car payments, for example), purchasing PMI might be helpful in some situations. If, for example, the reduction in the down payment is enough that you can put large lump sums toward paying off high-interest debts, it could be a smart move.
Cons of PMI:
- The clear drawback of private mortgage insurance is that it is another monthly bill to pay. If you already are having a difficult time socking away money in savings every month, eating further into your earnings with a monthly PMI bill can be quite a burden. You could find yourself dipping into your savings anyway.
If you do decide to take out private mortgage insurance, there are some types of mortgages like conventional loans which allow you to drop the PMI once you own a certain amount of equity. Others, such as FHA loans, require a refinance even after you have built up enough equity in the house.
First Residential Mortgage Can Help You Buy a Home Affordably
It can be confusing trying to figure out whether private mortgage insurance makes sense for your specific financial situation. Our goal at First Residential Mortgage is to save you money now and over the lifetime of your home loan. We can help you decide whether purchasing PMI or not is the best way to keep your home affordable and your finances healthy. Please give us a call today at (276) 782-1677 to schedule a consultation.