How To Buy A House Without Mortgaging an Arm and A Leg

The following is a post by Sasha Kahn, with information provided by Genworth Financial.

When buying a house, lenders prefer perspective buyers who can spend the required 20% on a down payment. But let’s face it, for many of us, that’s just not an option.

You may be one of the 99% who can’t afford a hefty down payment, but there are still ways to move forward with your dream of buying a home. Aside from the various types of home mortgages available, there is also something called mortgage insurance. Private mortgage insurance (PMI) is a loan to protect the lender in the event that the buyer defaults. It’s the only way to buy a home while putting down a minimal cash down payment.

Why PMI is needed

Statistics show that homeowners with less than 20% invested in the cost of a home are considerably more likely to default. Here’s where the risk comes in for lenders and investors. In an effort to offset that risk, lenders and investors typically require mortgage insurance for loans with down payments of less than 20%.

Where do I buy PMI?

You don’t. PMI is ordered by the lender while the loan is being underwritten. The lender works with the home buyer to determine which loan product best meets their needs, and then establishes the MI requirements. The investor then determines the amount of MI coverage required for each specific loan product.

Are MI premiums tax-deductible?

Tax deductions are available for both seasoned and first-time homebuyers. Household income and marital status affect deductions. There are some other restrictions as well.  For example, the property must be your primary residence, your adjusted gross income must be $100k or less for full deduction (partial deductions up to $109K), and the origination of your mortgage must have occurred after January 2007.

PMI has benefits for the home buyer

Obviously the primary benefit is that without PMI, people with little money for a large down payment would not be eligible to become a homeowner. But there are other benefits as well. Companies like Genworth Financial offers Job Loss Protection that will help with mortgage payments if you lose your job. In this economy, that’s a huge benefit.  Genworth also offers Homeowner’s assistance programs to help you through the arduous process of buying a home.  They’ll even offer a discount on the mortgage insurance premium with their Counseling Saver program.

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3 thoughts on “How To Buy A House Without Mortgaging an Arm and A Leg

  • I agree that it is better to wait and save up for the 20% down payment, but in many cases it is actually preferable for a buyer to put down whatever they can afford and go the PMI route if they still fall short.

    A couple of examples where a PMI would be preferable are: if the buyer is already paying a substantial amount on rent, that money would be better spent paying down the mortgage on a new house; if house prices are expected to significantly increase in the near future; or if the property in question is highly desirable and will likely be snapped up by another buyer.

  • Its a great time to buy a home simply because their are so many places in the country where home prices have become attractive. Thirty year fixed rate mortgage rates are now under four percent. I can remember years back when housing was king long before the housing bust. Everybody had the expection that home prices would always increase. Even myself as far as that go’s almost believed in this fairy tale. And it was just that a fairy tale as long as it lasted. I don’t have the data in front of me but I think their was only one or two years from 1945 to the early 2000’s that national home prices declined. Their were pockets of weakness in texas during the oil bust of the 1980’s but over all prices increased steadly from 1945 to about 2006. One giant bubble

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