Do you have 20%?

Do you have a 20% down payment?

That is the standard minimum required for a mortgage, but many people don’t have it.

As stated here, many people believe they can’t get a mortgage without 20% down.

Of course, today there are alternatives . . .

Conventional loans can come with as little as 5% down.

FHA loans are 3.5% down.

And a VA loan is available for veterans with no down payment at all.

The catch is that any loan less than 20% down requires mortgage insurance. On a conventional loan, it is monthly “private mortgage insurance” (PMI). For FHA that means both an upfront and a monthly “mortgage insurance premium” (MIP) & for VA there is an upfront funding fee and no monthly premium.

Private mortgage insurance protects the lender against the possibility of the borrower not paying the mortgage . . .

And of course, the borrower has to make the extra premium payment to protect the lender as an add-on to the mortgage payment every month.

It provides the benefit of being able to buy a home with less than 20% down, but it increases the cost of the mortgage.

It’s great to be able to buy a home, there can be many advantages over renting. Low down payment loans with monthly mortgage insurance allow that to happen, but they make the monthly cost much more expensive.

Unfortunately, having a mortgage loan with a low down payment and mortgage insurance added to the monthly payments is the exact type of behavior that leads people to become part of the 95% of people who fail financially.

To become part of the 5% of people who succeed financially, an early step needs to be eliminating private mortgage insurance from your loan.

On a VA loan, that won’t be necessary since it comes without the added monthly mortgage insurance payment.

For conventional and FHA loans, there are various options to removing mortgage insurance from your loan payments.

You may be overpaying your mortgage even now when you don’t need to be.

Tomorrow, we’ll walk through the options . . .

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