(BPT) - For the past several years, homebuyers have faced a hot housing market and home prices have risen at what can seem like an intimidating rate. In today’s market, it could take a family earning the national median income up to 14 years to save for a 20% down payment plus closing costs, according to U.S. Mortgage Insurers (USMI). It is understandable that prospective homebuyers might be discouraged and want to wait. However, purchasing a home in an affordable and sustainable way is possible with a low down payment mortgage backed by private mortgage insurance (MI).
Here is how it works.
Private MI helps a borrower with less than 20% down qualify for a home loan and the average down payment for purchasing a home with private MI is 7%, according to USMI. Private MI is typically paid monthly along with the mortgage payment. The benefit is not just that the borrower is able to qualify for a home sooner, but also that the cost is temporary. Unlike government-insured mortgages backed by the Federal Housing Administration (FHA), private MI cancels once a homeowner establishes 20% equity either through payments or home price appreciation. When the private MI is canceled, your monthly mortgage bill goes down.
Let’s look at how this would work in today’s market.
Consider you want to purchase a $407,600 home, the median sales price for a single-family home in 2022. A 5% down payment is $20,380 versus $81,520 for 20% down. With a 740 credit score at today’s MI rates, your monthly MI payment would be about $171. This is included in your monthly mortgage payment, and can be canceled, typically after five years once you reach 20% equity in your home.
But is it the right time to buy?
The right time to purchase a home is different for everyone, especially nowadays. Rising home prices mean homes will cost much more in the coming years. With higher home prices come higher down payments and, thus, more time required to save. Other factors such as rapidly changing interest rates can also make mortgage financing pricier down the line. Purchasing a home sooner allows you to begin building equity and the long-term wealth that comes with homeownership.
As we adapt to this changing world, it is important to know that it is possible to purchase a house now without exhausting your savings. Mortgage financing backed private MI makes this possible, helping borrowers gain access to housing sooner and succeed as sustainable homeowners.
According to USMI, private MI has helped more than 37 million families become homeowners over the past 65 years. In 2021 alone, nearly 2 million families accessed mortgage financing sooner because of private MI.
If you’re interested in learning more about private MI, check out lowdownpaymentfacts.com to calculate your cost and learn more about your options.