Traditional mortgage lenders want new homebuyers to have a 20 percent down payment when they buy a new home. So, if you want to buy a $200,000 home, you should be ready to put down $40,000.
Many people don't have this kind of money lying around, though. Private mortgage insurance (PMI) was made so that mortgage companies could get their money back if a homeowner didn't pay back the loan. People can get different kinds of loans to help with down payments. In some cases, homeowners can get 100% financing and not have to pay PMI.
What's Private Mortgage Insurance?
Because Americans are making less money and home prices are going up steadily, most people can't save the 20 percent down payment that is recommended. Mortgage companies came up with PMI, or private mortgage insurance, so that people with less than 20% to put down on a home could still buy one. This insurance protects the lender if you don't pay your mortgage.
How to keep from having to pay private mortgage insurance
On average, PMI might add $100 to your mortgage payment, but it could be less or more. But there are ways to avoid having to pay for this extra insurance. The obvious thing is to have a down payment of at least 20%. If this is not an option, the homeowner may agree to a higher interest rate. One other strategy is to get approved for 100% financing.
How does financing a 100% mortgage work?
You can buy a home with no money down if you get a mortgage that pays for everything. A 100 percent mortgage loan is also called a piggyback loan or an 80/20 mortgage loan. It involves getting a first mortgage for 80% of the cost of the home and a second mortgage, or home equity loan, for 20% of the cost of the home. With the first and second mortgages working together, you can buy a home with no money down and no private mortgage insurance.
