If you're in the market to buy a home, you've probably heard the rule of thumb that you shouldn't buy a home unless you can put down 20% to avoid paying Private Mortgage Insurance (PMI). Why is 20% the magic number and what is PMI?
It's a fact that the more you put down, the lower your monthly mortgage payment and the less you'll owe the bank. It's also a fact that homebuyers who put down at least 20% don't have to pay Private Mortgage Insurance, an added insurance policy that protects the lender if you are unable to pay your mortgage. As the borrower, you pay the monthly PMI premiums, and the lender is the beneficiary. However, if putting down 20% will deplete all of your savings and leave you with no financial cushion, it's probably not in your best interest.
Fortunately, when it comes to the size of your down payment you have choices – and a growing number of today's buyers are putting down between 5 and 10%. Sure, you'll have to pay PMI for a conventional loan with a down payment of less than 20%, but it means you'll be able to take advantage of today's historically low mortgage rates and affordable home prices in many parts of the country. And, once you've built equity of 20% in your home, making the amount you owe on your mortgage 80% or less of its value, you can cancel your PMI and remove that added expense from your monthly payment. For borrowers with FHA loans, you'll be responsible for paying FHA mortgage insurance premiums for the life of the loan.
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. 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.
Take a look at how a $200,000 home looks with 5% down and 20% down, below, to see the impact on a monthly mortgage payment. Not surprisingly, the mortgage payment with less down will cost more – especially until you reach 20% equity in your home – but the value may be getting your foot in the door.
As for the rule of thumb about putting 20% down: Yes, you won't have to pay PMI, but remember you have plenty of choices when it comes to your down payment. Carefully evaluate your finances to determine how much you can afford and talk with your lender or housing professional about what makes best sense for you and your particular situation.
Reference Link: http://vastreamlinemortgage.net/loan-process/... more
Hello Sandra, yes sure you can cover closing costs within the rate with premium financing with whatever down payment you choose or qualify for. Your fico scores can be raised within 3-4 days in most cases to qualify for programs, rates and terms as necessary.
You may qualify to buy FHA with fico scores between 500-579 with 10% down or minimum 580 fico score may qualify FHA 3.5% down or as low as .5% half percent down payment program. You may consider 3% down conventional from a minimum 620 fico score.
The purchase start from 375k for 2bd 1ba single family home in La Honda zip code 94020 which is as low as $1,875 down payment with a minimum 580 fico score @375k.
You will need to be pre-approved if you decide to buy to be able to meet an agent to view and submit offers on any homes of your choice. Your qualifications will be determined by your credit profile, debt to income ratios, fico scores, home price, loan program and how much you want to invest into the down payment and closing costs.
You may qualify to buy with minimum out of pocket expenses and pay less than rent in many cities. It only takes a few dozen questions to qualify, go over your options and email you listings to study and compare. Here are some links to study as well as web reference links to many loan program pages offered...
Sheryl Arndt, Real Estate Broker - Sr. Loan Officer CA only
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Under640FicoScoreLoans@gmail.com or HomeLoans4U@live.com
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