This is our third blog post to celebrate National Financial Literacy Month and to help put (or keep) you on the road to financial success.
When buying a home, some lenders require a down payment of 20% of the home’s purchase price. However, many lenders offer loans with less than 20% down, even as low as 5% on a conventional mortgage. There is a catch though. If you put less than 20% down on your new home, your lender will usually require you to purchase Private Mortgage Insurance or PMI.
So what exactly is PMI? I’m glad you asked! PMI is an additional amount you pay along with your monthly mortgage payment that guarantees to protect the lender if you fail to pay your mortgage. Typically, PMI will raise your monthly mortgage payment, unless you make a one-time upfront payment for the PMI at closing.
When shopping for a mortgage lender or broker (see last week’s post), be sure to ask what each lender requires for a minimum down payment, and ask what special home loan programs might be available to you, such as an FHA or VA loan. If your lender requires PMI for your situation, ask what the total cost of the insurance is and how much it will increase your monthly payment when the PMI is included or what a one-time premium would be.
Your Realtor® or lender should be able to answer any questions you might have, but here is a handy online resource, compliments of the Consumer Financial Protection Bureau that can also help.