If you're looking to buy a home and get a mortgage loan, you've no doubt heard about ways to avoid or ditch private mortgage insurance, or PMI. Supposedly, this is an extra cost that is simply a burden, and you're supposed to be better off getting rid of it. Granted, paying extra isn't always a desirable thing, but with PMI, there's one big advantage that you have to remember. That advantage is the lower down payment.
Inflation and Interest
Despite the ups and downs of the housing market over the past few years, housing prices have generally gone up. That includes the price of rent. While there is always the chance of another housing bubble bursting and dropping prices later on, there is no way to guarantee that, or to guarantee how much the prices will drop. However, if there's another housing implosion, rents will still go up as former owners desperately look for a place to live.
If you can buy a house now, you can put what would be rent toward the price of the home. If you continue to rent, that money does not build equity for you. It gets you help with your maintenance concerns, certainly, but you still don't build equity or have what will likely be a permanent place to live.
With housing prices already rising, and pay not necessarily keeping up, any chance to own a home for a lower down payment is something to look at. PMI is required when your down payment is under 20% of the cost of the home, but it does allow you to have a down payment that's lower. So, you can get into the home-owning market much more quickly than if you tried to save up for a higher down payment. That protects you from rent increases that send your money nowhere.
In addition to that, PMI costs per month might not exceed the extra money you'd have to raise to get your down payment above 20%. So you still end up paying extra for the insurance, but you have more money coming in each month from your paycheck that you can invest for retirement. Plus, because you'll be buying a home before prices rise even further, you reach the magical 20% threshold sooner -- the threshold where your PMI is no longer a requirement.
It's essentially taking a step backward to make two steps forward later on. Having the PMI will seem bad at first, but you'll reach the 20% threshold faster and be able to keep investing money for retirement, rather than tossing it at ever-increasing house prices.
If you'd like to know more about how PMI works, contact a mortgage broker who can help you find the best deals and interest rates. Remember that PMI exists because there is that option to get a home with a lower down payment, so don't dismiss PMI as something that is wholly bad. It's allowing you to get a better deal overall on housing.
For more information, contact McKinley Mortgage or a similar company.
