Homebuyers should know how important it is to have at least a 20% down payment saved up before they make an offer on a Summit NJ real estate property. This doesn’t only make you an attractive buyer and help you get the best rates; it can also save you money. Without at least this much to put down on a home, the buyer will have to purchase private mortgage insurance.
Private mortgage insurance is a policy that protects the lender from default. If you fail to pay the mortgage, your lender is protected against a major loss. The buyer foots the bill for a PMI policy even though he is not the one who receives the benefit from it.
The charges for PMI will vary from lender to lender. It typically runs about one half of one percent of the total value of the loan. While this sounds like a small percentage it can calculate to a higher number than you might expect. Your Summit NJ realtor can tell you more about what to expect from lenders in your area.
Take the value of your estimated loan and multiply it .005 to see how much your PMI could cost. You may be surprised at the results. When you take into account that PMI payments are not tax deductible, the cost is even higher. Keep this amount in mind when you are browsing the Summit NJ listings.
PMI can be avoided entirely by keeping you loan-to-value ratio at 80%. This means that the value of your loan is no greater that 80% of the value of the home itself. By saving up and paying a down payment of at least 20%, you start out with the desired ratio.
If you aren’t able to make the 20% down payment mark, you can still buy a home although this was not always the case. There was a time, not so long ago, when lender would not consider making a loan with a smaller down payment. In fact, having a PMI policy may allow you to purchase a home with as little as 3-5% down. Your Summit NJ real estate agent may be able to get you into a home sooner or help you purchase a more expensive home by purchasing PMI.
Your PMI policy is cancellable, too. The law requires an automatic cancellation of the policy once you own 22% of the home. You may also be able to cancel once you hit the 80% value ratio. Talk to your lender for more specifics on their PMI requirements.