If you are saving up for your first home, you have probably heard the old rule of thumb that you need a 20% down payment. For a $400,000 house, that means saving $80,000 in cash. For many buyers, that number can feel out of reach when you are just starting out.
The good news is that you do not actually need 20% down to become a homeowner. Many modern loan programs let you buy a house with as little as 3% down.
However, when you look at low down payment options, there is an important detail that is important to understand. It is called PMI, and knowing how it impacts your monthly budget can help you make a much smarter financial decision.
What is PMI and how does it work?
PMI stands for Private Mortgage Insurance. When a buyer puts down less than 20% of the home’s purchase price, traditional lenders see the loan as carrying a bit more risk. To balance that out, they require the buyer to pay for a temporary insurance policy.
It is helpful to know that this insurance protects the lender rather than your personal investment if you ever fall behind on payments. The cost of the premium is simply added to your monthly mortgage bill along with your regular property taxes and homeowners insurance.
PMI fees typically range from 0.5% to 1.5% of your total loan amount each year. On a $400,000 home, that can add anywhere from $150 to $300 to your monthly housing expense. In some cases, PMI can be removed over time once you build enough equity in your home. Still, it’s helpful to understand how it affects your monthly payment upfront because those fees can really add up.
A path to homeownership without the added cost.
At Firefighters First Credit Union, our goal is to partner with you to make your home-buying journey as smooth and affordable as possible. We want to help you maximize your hard-earned money so you can build equity in your house faster.
Because we are member-owned, we design special programs specifically for our community. Our First-Time Homebuyer Program is built to give you the best of both worlds: it allows you to put down as little as 3% while skipping the monthly PMI requirement completely.
Let’s look at how the math compares on a $400,000 home with 3% down:
- With a traditional mortgage: You pay your mortgage, your taxes, your home insurance and a monthly PMI fee of around $200.
- With the Firefighters First Program: You pay your mortgage, your taxes and your home insurance. Your monthly PMI fee is $0.
By removing that extra monthly insurance expense, you can keep your monthly housing payment lower. That keeps more money in your pocket for everyday life, home updates or building your family savings.
Your next step.
You do not need tens of thousands of dollars saved to take your first steps toward homeownership. Our mortgage team is here to guide you through the options, answer your questions and help you figure out what fits your budget.
Connect with a Firefighters First mortgage specialist today, and we can help you build a home-buying plan that fits your goals and your budget.
