When you take out a conventional mortgage to buy a home, your lender will require you to pay a premium for a private mortgage insurance (PMI) coverage if you opt to put a low down payment. Like the majority of homebuyers, a PMI gets you an approved mortgage that you would barely qualify to take. After several years of repaying your monthly mortgage, you’ll realize that your PMI becomes a burden and canceling it could help increase your savings.
If you will take out a mortgage as a first-time homebuyer, lenders want to make sure that you’re able to dutifully repay the whole amount of the loan you’ll take, plus interest, until the end of the term. Because lenders take a considerable risk when lending money, they find it ideal to require borrowers to make an upfront down payment of 20 percent. If you think a 20 percent down payment is overwhelming, lenders may allow you to put a low down payment, but they will require you to pay a Private Mortgage Insurance or PMI. This could be a viable option if you want to fulfill your homeownership dreams.