Buying a home can feel like an overwhelming process simply because of all of the moving pieces you must consider first in making the purchase. Lenders always go through the necessary task of underwriting in the loan approval, which includes digging into your financial history. This process typically includes loads of paperwork, phone calls and consultations, just to be sure you're good for repaying the cost of the loan. Even then, when you reach the other side of the underwriting process, you may be stuck with payments that you find aren't comfortable with.
You're left feeling confused when you consider that you understood that the mortgage payments were easily affordable when you first set out on the process. What changed? Things like interest rates, property taxes, and PMI all effect that final monthly payment, and are easily swayed by things within and without of your control. PMI, specifically, is something that is easily avoidable. When you can't avoid it, however, there are ways to drop the cost, bringing down the monthly payment for your home significantly.
First of all... what is PMI?
PMI, or private mortgage insurance, is a policy that protects lenders against the losses that result from defaults on home mortgages. It is a requirement of the FHA (Federal Housing Administration), which has been in place since 1930 with the goal of stimulating the housing market by making loans accessible and affordable. PMI exists solely as a protector for lenders – they collect from you monthly to cover their need for insurance that exists because they were willing to lend you money. It makes sense to conclude that the more sturdy your financial situation, the less risk they'll incur, and the less likely you'll take a hit with PMI payments.
How can you avoid PMI?
Avoiding PMI is necessary if you're financially equipped to do so. The lender of your choosing will more than likely not drop PMI unless you are able to provide a 20 percent or more downpayment at purchase. When you're able to put down 20 percent or more, the risk is sufficiently minimized for the lender, thereby essentially negating the necessity of mortgage insurance. Inability (or unwillingness) to lay down instant equity calls many things into question, and risk is one of them. If you can't afford a 20 percent or more downpayment, will you have trouble maintaining monthly payments? Simply stated, when you lay down 20 percent or more up front, the bank understands that you have the money saved, you've thought the purchase through, and their risk for default and foreclosure lessens significantly.
Can't avoid it? How can you minimize it?
Sometimes laying down 20 percent or more at purchase isn't feasible. Times like these require a great lender who can instruct on how to make the most of the situation by helping to drop the PMI significantly, and make it go away quickly. Nationwide Mortgage can help in this process significantly, as they're able to secure the best mortgage rates in Fort Lauderdale.
Generally speaking, PMI is calculated by factoring in the size of your downpayment and loan. Depending on the lender, typically PMI costs run anywhere between about .5 percent and 1 percent of the loan itself. From there, it's easy to conclude that one of the best ways to ensure a lower PMI is to find a lender that can ensure the best mortgage rates in the area. NHL lending is your ticket to making sure that you're getting the most for your money, with the lowest interest rate possible. When that mortgage rate drops, so does your PMI.
Another way to lessen your PMI is simply to put down as much as possible at closing. The consultant you work with at Nationwide will instruct you on how best to distribute your money at closing to ensure that you're getting the most out of it through the process, and setting yourself up for success in creating instant equity but balancing it with affordable payments.
Understand that, with Nationwide Home Loans, PMI goes away completely when you have 20 percent equity, so the sooner you pay that much on principle, the sooner the PMI goes away. Additionally, PMI may be eliminated when your loan balance is scheduled to meet 78 percent of original home value. Lastly, payments may stop when you reach the midpoint of the amortization period (7 and a half years for a 15 year loan).
PMI isn't something you'll be stuck with forever. In fact, dutifully paying down your mortgage as quickly and often as you can will help drop it significantly very quickly. Choosing a lender who's flexible to work with you on your timeline, and who can provide the cheapest mortgage is the best way to minimize PMI outside of the 20 percent downpayment. If you're looking for a lender who can do these things and more, look no further than Nationwide Home Loans in Fort Lauderdale, Florida.