Understanding PMI & Down Payments

Jim Hills

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Understanding Private Mortgage Insurance (PMI) and how much money you should put down with purchasing a house can be complicated. Let the experts at Honor Bank help you make the important decisions about your mortgage.

The amount of your down payment is a highly individual decision based upon your personal circumstances and those of your local real estate market. The standard rule of thumb for a down payment is 20%. However, the median down payment in the U.S. is 15%. And, there are many loan programs available that require even less money down. Should you make a down payment of less than 20%, then PMI insurance may apply.

What is PMI?

PMI (Private Mortgage Insurance) allows lenders to finance homes in which the down payment is less than 20%. It partially protects the lender in case of loan default. Research shows that low-down payment loans are riskier for lenders and PMI helps cover this additional risk.

The cost of PMI varies based upon factors such as down payment (you'll need less PMI with 15% down than you will with 3% down). PMI insurance costs also depend on the type of loan and the loan's term.

Unlike government-insured loans like FHA, you do not need to keep PMI for the life of the loan. When your mortgage balance reaches 80% of your home's value, you may request to have PMI cancelled*. Your lender will automatically cancel PMI when the balance reaches 78%.

Another lesser known benefit of PMI is that it is tax deductible for primary and second homes. A caveat...we're bankers and not accountants, so please check with a tax professional for details. 

We hope this answers the common question of "What is PMI?' 

Other Down Payment Options

In addition to PMI-based loans that offer down payments as little at 3%, Honor Bank also offers USDA-RD loans that allow you to get into a house with 0% down. USDA-RD loans also offer a 30-year fixed rate. Income limits and property restrictions apply, so if you're thinking this may be an option for you, please ask us for the details.

More Questions?

That's why we're here. If you're thinking of buying in next 3 months or 3 years, it's never too soon to connect with an Honor Bank mortgage expert. In addition to answering your down payment questions, we'll talk with you about some of the other keys for preparing for home ownership:

  • Paying down high-interest debt
  • Keeping your credit score up and/or improving your credit score
  • The importance of knowing how much you can afford

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