Are you ready to buy a home in the Bay Area with less than a 20% down payment? If so, you may need to pay for private mortgage insurance (PMI). PMI is a type of insurance that protects the lender in case you default on your loan. PMI is usually added to your monthly mortgage payment, and it can range from 0.2% to 2% of your loan amount annually.
Some homebuyers may think that PMI is a burden or a hurdle to homeownership. However, PMI is actually a smart way to buy a home with a lower down payment and enjoy the benefits of homeownership sooner. That’s why Mareijke Weidemann, the top real estate agent in the East Bay, is here to share some reasons why PMI is a smart choice. Learn more below, then book a strategy call today!
EMPOWERING HOMEBUYERS WITH FLEXIBLE MORTGAGE OPPORTUNITIES
PMI enables you to buy a home with a lower down payment. This means you can use your savings for other purposes, such as investing, paying off debt, or improving your home. You can also take advantage of low interest rates and favorable market conditions.
IT’S NOT FOREVER – APPLY TO HAVE IT REMOVED
PMI is temporary. You can apply to remove PMI once you have built up enough equity in your home, usually when your loan-to-value ratio reaches 78% or lower loan amount ( i.e. once you get to 20% equity).
THE WEALTH YOU GAIN FAR EXCEEDS THE MONTHLY PMI AMOUNT
If you buy a home in an area where home values are rising, such as the SF Bay area, your home equity gains far exceed your annual PMI costs. For example, let’s say you buy a $500,000 home with a 10% down payment ($50,000) and a 5.5% interest rate. Your monthly mortgage payment would be $2,286, including $75 per month for PMI (assuming a 0.2% PMI rate). After one year, you would have paid $900 in PMI, but your home value would have increased by $25,000 (assuming the long run SF Bay area historical annual 5% appreciation rate). That means your net gain would be $24,100 ($25,000 – $900), which is more than 26 times your PMI cost!
As you can see, PMI is a smart way to buy a home in the Bay Area with a lower down payment and enjoy the benefits of homeownership sooner. If you’re interested in knowing how you can purchase a new home with less than a 20% down payment, we encourage you to contact Homes With M. Mareijke can evaluate your personal situation and help you determine the best course of action to achieve your homeownership goals. Get started today!
Consumer Financial Protection Bureau. (n.d.). What is private mortgage insurance?
Investopedia. (2021). Private Mortgage Insurance (PMI) Cost and How to Avoid Them