Are you planning on buying a home in Flagstaff? If so, how much do you know about the mortgage process, specifically Private Mortgage Insurance?  If you plan on getting a mortgage offers less than 20% down payment, you’ll notice a lot of programs out there that lets you do this. But if you plan on getting one of these types of loans, you also need to know about Private Mortgage Insurance. If you don’t already know about this type of insurance, how can it help you when you buy your next home?

Freddie Mac defines PMI as:

“An insurance policy that protects the lender if you are unable to pay your mortgage. It’s a monthly fee, rolled into your mortgage payment, that is required for all conforming, conventional loans that have down payments less than 20%.

Once you’ve built equity of 20% in your home, you can cancel your PMI and remove that expense from your mortgage payment.”

The borrower pays the monthly premiums for the insurance policy, and the lender is the beneficiary. Freddie Mac goes on to explain that:

“The cost of PMI varies based on your loan-to-value ratio – the amount you owe on your mortgage compared to its value – and credit score, but you can expect to pay between $30 and $70 per month for every $100,000 borrowed.”

Last year, the average down payment for all home buyers across the nation was 10% and 5% for first time buyers, according to the National Association of Realtors (NAR). They also reported that  the average down payment for repeat buyers was 14%. That means that Private Mortgage Insurance didn't stop many home buyers from buying homes.

Here’s an example of the cost of a mortgage on a $200,000 home with a 5% down payment & PMI, compared to a 20% down payment without PMI:

The larger the down payment, the lower your monthly housing cost will be, but Freddie Mac has this advice:

“It’s no doubt an added cost, but it’s enabling you to buy now and begin building equity versus waiting 5 to 10 years to build enough savings for a 20% down payment.”

If you're planning on buying a home in the Flagstaff area and have questions about buying now or saving for a larger down payment, feel free to contact us to help you decide what works best for your situation. You can also search for your dream home now using our convenient home search tool.