Information contributed by Genworth Financial
If you’re thinking about buying a house, it’s important to understand all the costs that are associated with paying for a home. In addition to paying the mortgage, you’ll also have to pay property taxes, buy homeowner’s insurance, and if you don’t have a 20% down payment, you’ll need private mortgage insurance, or PMI.
What is PMI?
When you buy a house, you either need to put 20% down (meaning you pay for 20% of the value of the home up front) or pay for private mortgage insurance. This insurance allows you to get into a home without the 20% down payment. If you want to buy a home without a huge down payment, PMI is one of your options. Banks are more willing to lend to a potential home buyer with PMI because home buying transactions are smarter and safer with mortgage insurance.
PMI serves functions for both the bank and the home owner. It protects the bank in case the home owner can’t pay their mortgage and the bank has to repossess the house. It can also protect the consumer in the form of services such as job loss protection and homeowner assistance.
The nice thing about PMI is that it can be cancelled as soon as you get 20% equity in your home. For example, if put 5% down on a $100,000 home, you will take out a mortgage for $95,000. You will also pay PMI every month until the amount of your loan is 80% or less than the value of the home. You can hit the 80% mark by paying down the principle of the loan, or by having the value of your home increase. No matter how you get there, you can cancel PMI as soon as you hit that magic 80% number and start saving money.
Getting the Right Information
Before you make any big decision it is best to do some research, and since buying a house is one of the biggest decisions of most people’s lives, it’s even more important to know what you are getting into. Understanding international mortgage trends will give you a better idea of the housing market in your country, as well as around the world. The more information you have, the better you will be able to time your purchase just right and ensure you get the house you want at the price you want.