The majority of American homebuyers think they need to have a 20% down payment to be approved for a mortgage. In fact, in a recent National Association of Realtors survey, 34% of those that responded said they think they need over 20%.
Here’s what you may be surprised to learn – low down payment mortgages make up a large quantity of home buying every year. With the help of a private mortgage insurance (PMI), people who have five percent or less for a down payment can still buy a home. PMI has been available since the late 1950s, with more than 25 million families purchasing the home of their dreams.
In just the last year, the PMI had ensured that over 750,000 people were able to buy a home or refinance their mortgage. Many of these folks were first-time homebuyers with over 40% of them with incomes of less than $75,000.
How Does PMI Work?
Believe it or not, the private mortgage insurance process is extremely simple. When going through the mortgage underwriting process, the lender will verify employment and figure out how much a person can afford to pay each month. Lenders typically want homebuyers to put down 20% before the bank offers a loan. 20% shows the financial lender that the homebuyer is serious about the purchase.
PMI reduces the down payment gap, so borrowers who would normally get turned down for a loan will actually be approved for one.
4 Primary Benefits Of PMI
1. You can purchase your home sooner. It can be years before a person can actually save up 20% for a down payment. With the PMI, most buyers can purchase a home with a minimum of 3%.
2. It’s only temporary and will eventually result in lower monthly payments. Once 20% equity has been reached – through your making the payments or the home’s appreciation, the PMI is canceled. However, for FHA loans (the federal government’s PMI), the PMI is there until the loan is paid off.
3. It offers a multitude of flexible payment options. The lender may provide various choices for the PMI payment – the most common is the PMI being lumped into the mortgage payment.
4, You can deduct it on your taxes. There are income limits, but the PMI premiums are tax-deductible like the interest of your mortgage. Four million taxpayers took advantage of this deduction in 2014.
Private mortgage insurance is one of the easiest way to attain a mortgage with little down payment for a home. Plus, it provides an array of benefits to potential homebuyers. Due to its prevalence in the nation’s housing market, it has given millions of people the chance to become a homebuyer even when other financial obstacles stood in their way.
Note: You always want to talk to a tax adviser regarding income tax deductions.
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