First-Time Buyers

May 18, 2013

Buy More with Less: You Don’t Need a 20% Down Payment!

A common misconception by prospective homeowners in today’s market is that you need to have a 20% down payment to buy a home. There are several options for buying a home with a smaller down payment and still using conventional financing.

You can still have a conventional mortgage and put as little as 5% down to purchase a home. How, you may ask? Simple, you need mortgage insurance. Anytime you have less than 20% equity in a home, you are required to have mortgage insurance. There are two options for mortgage insurance. The option that is best for you, depends on your future goals.

Are you planning on being in the home long term?

Monthly Private Mortgage Insurance (PMI) may be the best option for you. Depending on your down payment, loan amount and credit score, monthly PMI will be a fixed amount added to your monthly payment. After a certain number of payments, once you have 20% equity in your home, monthly PMI will go away. You can always make additional payments to your mortgage, which will also help to shorten the amount of time you have monthly PMI.

Are you planning on being in the home for a short period of time?

Upfront PMI may be the best option for you. Upfront PMI is percentage of the loan amount, which will vary based on your down payment amount, loan amount and credit score. After paying upfront PMI, you have no other mortgage insurance fees for the remainder of the loan. In some cases, there is an option for a PMI buyout. By increasing the interest rate of your loan, you can cover the cost of upfront mortgage insurance. If you are planning on only being in the home for a short period of time, it sometimes makes sense to have a higher interest rate to avoid paying the costs of mortgage insurance.

United Home Loans provides Illinois mortgage loans in addition to mortgages in Indiana, Michigan, Minnesota and Wisconsin. Contact us below or at 708-531-8388 with any questions.

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