Some lenders and real estate professionals may think of mortgage insurance as an obstacle, complicating the mortgage loan process. In reality, private mortgage insurance (or MI) is a tool that enables you to make a lower down payment, buy the home you want sooner, and have cash reserves left after closing. MI can make a significant difference in the home you’re able to purchase.
Buy the home you want today. If you’re like many home buyers, you may assume the need for – or you’ve been encouraged to make – a 20% down payment. This may mean settling for a less expensive home. On the other hand, if you decide to delay the purchase of your home, in order to save for the 20% down payment, chances are that rising sales prices may actually exceed your rate of savings. That means you may have to purchase a less expensive home for the same money – and later than you would like.
With MI coverage, first-time home buyers can buy the home they truly want, when they want it, with a down payment of as little as 3% (or even zero down) depending on their credit history and state law. Plus, MI helps home buyers avoid the pitfalls of a piggyback loan.
Save money for the things you need. If funds for the down payment are not an issue, you can still use MI and save your available cash for other purposes: home furnishings, landscaping, savings, education, investment, or paying off consumer debt. These alternate uses of cash reserves can provide a considerable comfort level. MI also means that you need less cash to close on your loan. A financed or monthly premium plan may reduce closing costs even more.
Larger loan amounts may mean greater tax deductibility. Current federal tax laws actually make it smarter to borrow more by placing less down on your home.1
The 1986 Tax Reform Act eliminated all consumer interest deductions except home mortgage interest. MI enables the borrower to show more deductible interest, while saving cash on hand for other needs.
1United Guaranty does not provide tax advice. Borrowers are encouraged to consult their tax professional. |