As everyone shopping for a mortgage today knows, you don’t need a huge down payment to get a home loan. An FHA loan offers borrowers options for down payment. More and more buyers are offering up 5 to 10% down payments versus the previously thought standard of 20 percent. However, there is a trade-off— Private Mortgage Insurance (PMI). This policy is put in place to protect the lender in the case that the borrower is unable to pay their mortgage. Putting 20% down up front means that you can avoid the added cost of PMI, but if that means draining your savings account to the point of no financial buffer, it may not be the best option for you.
Taking advantage of today’s low mortgage rates is one of the benefits of applying for a mortgage now instead of waiting another 5 to 10 years to save for a 20% downpayment. While PMI is an added expense, the value may be getting your foot in the door. Once you’ve built 20% equity in your home, you can cancel your PMI and remove that additional expense. Talk to your mortgage professional today about what down payment options make sense for your particular situation, and get locked into historically low rates!