You know that I think home ownership is a good financial move for most people. It can take a long time to save 20% down especially when you live in high cost areas. After years of decreasing prices the median price is $350,000 in my area!
The international mortgage trends show it’s now just here. So you might want to buy now even if you don’t have a big down payment. Note, I don’t advocate buying a home if you still have outstanding debt.
Reasons to Buy Without 20% Down
1. Low Interest Rates – As the economy begins to warm up, there’s going to be a bigger demand for loans and interest rates will go up. Take advantage of the historical low rates while they’re available. I remember getting a 9% interest rate during inflationary times and thinking it was good.
2. High Rent – If you’re paying as much or more in rent than you would with a mortgage then it may be time to buy. On a House Hunter’s episode I saw recently the buyer’s new mortgage was $400 less than month than the rent she’d been paying!
3. Low Home Prices – Okay as my example proves low prices is relative, but most observers think the market is at the bottom or pretty darn close.
Private Mortgage Insurance
In order to get a home loan without 20% down the lender will require the purchase of private mortgage insurance which is usually referred to as PMI. For the lenders (banks and other financial institutions) loans without a big down payment are smarter and safer with mortgage insurance.
Not only does PMI protect the bank but it can protect the borrower as well with additional products for job loss protection and homeowner assistance.
PMI is tax deductible and can be cancelled once your equity grows to 20% of the loan amount. I had PMI in my first real estate transaction and it wasn’t long before we were able to remove this requirement due to increasing home value.
Is Now the Time for You to Buy?
If you are debt-free and want to take advantage of low home prices and low interest rates, this may be the time. Just figure out your monthly cost with mortgage, property taxes, property insurance and PMI to see if it makes sense for you!
Have you changed your homebuying schedule because of current conditions? What’s your experience with PMI?
Information contributed by Genworth Financial and photo by Nikcname.
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Something to factor in: Many Home Buyers Losing Write-Off For Mortgage Insurance Premiums http://ow.ly/8stdH
Maybe things have changed, but when we had PMI, it was NOT tax deductible. Still, our monthly payment was cheaper with PMI than it would have been with two loans (the 80/20 split that was so common at the time). And, we were able to get rid of the PMI as values rose.
The problem for us now is that we can’t refinance our mortgage (we’re at 6% APR) without having to pay PMI again because values have fallen and we don’t qualify for HARP. That means that the PMI would essentially wipe out any savings we’d get from a lower interest rate. So for now, we do nothing.
they keep extending tax deductions on PMI. It’s been extended through 2011, but who know? they might extend it again for this year.
I would love to buy a house and settle down. However, my company is not really conducive to that. We have projects and they only last a year or two. It’s not smart to buy a home — but I plan on it in the near future when my job is a bit more stable.
I got our home at 5.75% on a 30 year fixed, and felt rather good about the entire prospect. I paid 5% down, and we’re paying just a tiny bit over the minimum every month (just because I like round numbers). It’s appalling to see how the apartments can gouge you – but the breakeven point for getting the house isn’t until this year.
Yes, loans without big down payments are safe with mortgage insurance for the lenders. I think having a good credit score is essential if one wants to buy house at low interest rates.
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