It is an excellent time to be a home buyer with less than 20% down. Mortgage lenders are making new low- and no-downpayment loans available to today’s home buyers and purchase loan approval rates are markedly higher as compared to earlier this decade.
For buyers with less than 20% to put down, though, there is more than just low rates to think about — there is private mortgage insurance (PMI), too. PMI is required on all conventional loans where the down payment is less than 20% of the home’s purchase price.
PMI is a mandatory insurance policy for conventional loans which insures a lender against loss in the event that the homeowner stops making payments on a mortgage loan. PMI, because it’s for conventional loans only, is different from the mortgage insurance required on other loans, including FHA mortgage insurance premiums, which are for FHA loans only and mortgage insurance premiums required for USDA loans.
It is important to realize, though, that mortgage insurance — of any kind — is neither good nor bad. Mortgage insurance helps people to become homeowners who might not otherwise qualify because they don’t have 20% to put down on a home. Mortgage insurance makes homeownership possible.