20% Down Payment or Mortgage Insurance – What’s Best?

20% Down Payment or Mortgage Insurance – What’s Best?









When buying a home, many face the pivotal decision of how much to contribute to a down payment. While some strive to save for a 20% down payment, others are exploring homeownership possibilities through mortgage insurance. Here’s what you need to know:


What is Mortgage Insurance (MI)?

Private Mortgage Insurance, or Private MI, is often a requirement for borrowers putting less than 20% down when buying a home. The purpose of MI is to provide mortgage lenders with a guaranty in the event the loan goes into foreclosure.



MI Considerations


Lower Initial Barrier

MI offers financial leniency for first-time homebuyers who qualify for low down payment programs such as FHA or Conventional loan programs.


Temporary Measure

While the cost of MI may accumulate over time, it’s not permanent. Once your property has enough equity or as it appreciates, you can remove the MI premium.


MI Options

While the MI premium typically appears on the borrower’s monthly mortgage statement and is paid by the borrower monthly, there are MI options available that allow a borrower to pay part or all of their MI premium as a lump sum at closing. Additionally, some lenders may offer an option to pay for the private MI cost, however they may increase the loan fees or the interest rate to cover the cost.



20% Down Payment Considerations


Instant Home Equity

When you offer a 20% down payment, you walk into your home with equity. You may also receive a lower rate when putting down a substantial sum saving you money over the life of the loan.


Avoid Private Mortgage Insurance

Private MI is a reoccurring monthly fee that is often required by lenders for borrowers who have a down payment of less than 20%.


Reduced Interest Expense

The lower the loan amount, the less interest you’ll pay over the life of your loan saving your money in the long run.



Contact Our Homebuying Experts

In today’s market, it’s important to understand your options. Mortgage insurance can help you buy a home sooner, possibly alleviating the hurdle of saving 20% for a down payment. Want to learn more? Contact our team today at 757-366-8690.