One of the great parts of the homebuying process is your can still get one of our mortgages even if you can't supply a down payment of 20 percent that many homebuyers aim for.
Whether you're looking to allocate more money to your savings, emergencies or renovations on a fixer-upper, you should understand what comes with a lower down payment - and one of those things is mortgage insurance premiums.
What is mortgage insurance?
Sometimes, there are financial situations beyond your control. A job loss, medical emergency or other significant life event can strain your finances to the point where you can't afford to make your mortgage payments each month.
If this were to happen and you ultimately couldn't pay your outstanding balance, mortgage insurance helps us recover the remaining loan amount. This money comes from the insurance company.
Two types of mortgage insurance exist. Private mortgage insurance is offered by a company in the private sector, and the other type is offered by government sources such as the Federal Housing Administration, Fannie Mae and Freddie Mac.
How mortgage insurance benefits you
While this coverage primarily serves lenders, it has one key advantage for borrowers: You can purchase a home without having a 20 percent down payment. Because a safety net is in place, we can get you the financing you need to become a homeowner sooner rather than later.
Saving up such a large chunk of a home's appraised value can take some time, especially if house prices are high in your prospective community. This task isn't impossible, but it can mean cutting back on some luxuries for a while. Instead of delaying your goal of getting the home of your dreams, take advantage of mortgage insurance.
Keep in mind this isn't to say you shouldn't save a 20 percent down payment if possible. The more you put down, the less interest you'll pay over the life of your loan. Plus, a larger chunk of the home's value may lead to more favorable loan terms.
Additionally, remember to factor in mortgage insurance premiums when budgeting for your new expenses as a homeowner. Typically, you pay these expenses each month with your mortgage payments, and you might have to pay an upfront cost. Don't fret about the monthly expense too much, as you no longer have to make these payments on the date your principal balance is supposed to drop below 80 percent of the home's original value.
For more information about smart ways to manage your finances, contact Landmark Bank.
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