While buying a home can be exciting and rewarding, it can also be stressful and expensive.
Homeownership will likely be one of the biggest investments of your life. Not only does a house come with home loan and insurance payments, it also requires budgeting for property taxes and home-improvement repairs along the way.
And sometimes, homeownership brings another expense—Private Mortgage Insurance.
What is Private Mortgage Insurance?
Private Mortgage Insurance, also called PMI, is a type of insurance that protects the lender, not the borrower, in case you default on your home loan.
Typically, with conventional financing, borrowers who pay less than 20% of their home’s purchase price at closing are required to make PMI payments as part of their monthly obligation.
Many factors determine the cost of PMI, according to Dupaco Community Credit Union’s Laurie Von Ah.
How can you avoid PMI?
PMI increases your total monthly payment, leaving you with less money to pay for other things.
You can avoid PMI by saving 20% for your down payment on your home. A free Dupaco Money Makeover can help you review your entire financial picture and create a budget and savings plan to help you reach that goal before you jump into homeownership.
“Dupaco has experienced representatives who are eager to help our members find a budget plan that works for their situation,” Von Ah said. “Dupaco also has access to many sources of grant funds for qualified first-time homebuyers, and we accept gift funds as a source of down-payment funds.”
Hint: To qualify, gift funds are required to be gifted from a family member of the borrower.
Can you remove PMI later?
Sometimes, PMI can’t be avoided. But even if you can’t afford a 20% down payment when you close on your home, that doesn’t mean you’ll always carry PMI.
Once you have at least 20% equity in your home, the PMI can be removed.
“You can contact us and request an appraisal on your home to determine the home’s value,” Von Ah said.
Just know that the appraisal will be at your expense.
Otherwise, you can avoid the cost of an appraisal if you wait until the balance of your loan is at 78% of the value.
“With this, you can call us, and we will just submit the request to have it removed,” Von Ah said.