First-time home buyer looking to make a change before the end of the year or looking ahead to 2025? You’ve probably seen many unfamiliar terms thrown around as you research how to get a loan and buy a home. One of the most common ones is Private Mortgage Insurance or PMI. If you plan to put down less than 20% on your home, PMI is something you’ll want to understand. While it might sound like just another expense, it plays an important role in making homeownership possible for more people. At The Potempa Team, we believe in ensuring our clients understand every part of the mortgage process, so let’s break down what PMI is, why it’s required, and how it can work for you!
What is Private Mortgage Insurance (PMI)?
Private Mortgage Insurance (PMI) is a type of insurance that is usually required when you’re putting down less than 20% on a loan. While some conventional loans allow you to put down less than 20% on a property, many first-time home buyers get an FHA loan, which has a minimum down payment requirement of only 3.5%. It depends on your current score, among other factors, but what makes FHA loans so attractive to first-time buyers is that lower down payment requirement.
Why is PMI Required for Certain Loans?
PMI is required when you put down less than 20% on a loan, and while it might feel like an extra cost, it’s actually there to help make homeownership more accessible. By offering PMI, lenders can provide loans to buyers who may not have a large down payment saved. PMI allows you to get into your new home sooner rather than later, without needing to wait until you have a full 20% saved. At The Potempa Team, we look at PMI as a tool that helps you get closer to your homeownership goals—and the best part is, once you’ve built enough equity in your home, you can work on removing PMI down the line!
How Does PMI Benefit Me as a Home Buyer?
For many buyers, especially first-time homebuyers, saving up 20% for a down payment can take years. With PMI, you don’t have to wait—by putting down as little as 3-5%, you can move into your new home and start building equity immediately. Plus, in a market where home prices are rising, getting into a home sooner could actually save you money in the long run, since property values may go up while you’re still trying to save. The bottom line is that PMI can actually be a helpful tool to get you into your dream home faster, helping you take advantage of current market opportunities instead of sitting on the sidelines. And remember, PMI isn’t forever!
What Should I Do Next if I’m Ready to Buy?
If you’re ready to buy and start your homeownership journey, the next step is to get pre-approved for a mortgage. This will give you a clear picture of how much home you can afford and show sellers that you’re serious and ready to move forward. At The Potempa Team, we make the pre-approval process simple and straightforward, guiding you through every step. Check out this great resource guide we put together!
Whether you’re considering a conventional or FHA loan, we’ll help you understand your options and find the best path forward. Ready to get started? Click here to start the pre-approval process with us!
