Private mortgage insurance (PMI) is an insurance policy that a mortgage company will require you to pay on a monthly or yearly basis that covers them in the event that you don’t pay back the loan. All mortgage companies will require you to pay PMI if you don’t start out with at least 20% equity in the home.
That means you need to contribute either 20% or more for a down payment or the combination of your down payment and equity from a higher appraisal value than the purchase price equals 20% or more. The premium typically runs about $100 a month for a $200,000 to $300,000 house.
Typically you have choices when it comes to your down payment when buying a home:
20% down or more: You’ll be eligible to apply for a conventional loan from any major lender. You’ll also avoid paying private mortgage insurance. This is the most ideal down payment to make.
Less than 20%: You won’t avoid PMI, but you’ll still qualify for a conventional loan through traditional lenders and credit unions. You may be able to qualify for a loan with as little as 3.5% down payment. You can still get a good interest rate with little money down if you have good, stable income and clean credit. But these loans are harder to qualify for nowadays.
If you’d like to find out more about loan programs, please give me a call at 703-963-0142. I’m happy to put you in touch with a couple lenders to discuss your lending options.