Keller Williams Napa Valley
Eve Kahn, Keller Williams Napa ValleyPhone: (707) 363-1512
Email: [email protected]

by Eve Kahn 03/15/2020

Image by Charles 🇵🇭 from Unsplash

Part of buying a home is researching the market and your finances. Most lenders require you to put at least 20 percent down or pay private mortgage insurance (PMI). Since PMI is a cost that does not lower your interest rate or principal, it’s almost always better to save up that hefty down payment. Lenders charge PMI to cover some of their risk if you do not put the 20 percent down to create equity. Conventional loans backed by Fannie Mae and Freddie Mac always require PMI if you do not put 20 percent down.

Avoiding PMI

In some cases, you could avoid PMI by taking out a special loan or a VA loan. VA loans are only available to veterans, but require very little down or even zero down. The VA doesn’t actually give you the loan—it insures your loan against default. Conventional loans not backed by Fannie Mae or Freddie Mac often have higher interest rates. These two programs are also government-insured loans.

Other reasons to avoid paying PMI include:

  • Tax laws change every year. As of 2017, PMI was no longer deductible, which means that you lose that offset.

  • The lender is the only beneficiary. If you should die before your loan is paid off, it will pay only the lender and only for the balance on the home.

  • You pay PMI until the equity on your home reaches 20 percent. If the market was good when you bought the home, but it tanks a couple of years later, you could be stuck paying PMI for many years.

  • Some lenders require you to pay PMI even after the equity in your home reaches 20 percent. If you do have to take PMI, always read the fine print.

  • Finally, PMI is difficult to cancel. You will need to write a letter to your lender to cancel the PMI. Until you hear from the lender, you will be stuck paying those premiums every month.

  • PMI ranges from .5 percent to 1 percent of the amount you borrowed paid out in equal monthly payments every year. Thus, a loan amount of $200,000 could have a $2,000 per year PMI premium, which is about $167 per month added to your mortgage payment until the lender agrees to cancel the premiums.

Saving the Down Payment

In addition to saving for a down payment, you may qualify for some down payment assistance programs such as the first-time home buyer’s program. These programs help you get that 20 percent so that you do not have to pay PMI. If you have a retirement account, you may be able to use money from that account to help with a down payment.

Though it may seem painful to pay such a large chunk of money, it saves you from paying insurance premiums and it lowers the cost of the loan since you don’t pay interest on the down payment and it is applied to the principal.

About the Author
Author

Eve Kahn

Eve Kahn, your Napa Real Estate agent. With 20 years of experience, I am confident that I can help you find your perfect home, learn about Napa neighborhoods and surrounding cities/towns, and the best places to live.  

I have spent decades involved in housing and land use issues, am a graduate of Leadership Napa Valley, and serve on various real estate and community commissions and committees. Don’t hesitate to ask me any questions you might have. This process is all about you and your needs. Real Estate is a big investment and I understand that. One thing you will get with me is a personal relationship, In the end, that goes a long way. 

My approach to business and life is Positive Attitude… Positive Results.

I feature a free, up to date and current Real Estate search that will allow you to search just like an agent.

As a resident in Napa,  I am fully aware of the current market trends and what it takes to get a great deal on a listing or get top dollar for your current home. When it comes to getting the job done right, you can count on me.

The Napa Valley and surrounding areas are a great place to live! For more information, please give me a call, text, or email me today. I would love the opportunity to earn your business and partner with you in regards to your Real Estate needs.