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Private Mortgage Insurance, or PMI, is insurance purchased by the buyer to protect the lender in case the buyer defaults on the loan. PMI is generally applied when you put down less than 20% of the home's purchase price.
How does PMI increase your buying power?
In simplest terms, PMI allows you to put less money down, and the benefits are as follows:
- If you have good credit but are short on cash for a down payment you can put as little as 5% down.
- It doesn't take as long to accumulate a 5% or 10% down payment so you could buy a home much sooner than you anticipated.
- A smaller down payment allows you to purchase a larger or nicer home.
- For repeat buyers, a smaller down payment on the new home can free up cash from the sale of their previous home to use for other debts or expenses.
- Your interest will be higher if you put down less than 20%, but that interest is tax-deductible.
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