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PrivateMI Puts Homes in Reach for Buyers
(ARA) -- Mortgage interest rates are at historic lows, making this an excellent time to buy a home. However, many potential home buyers find coming up with the typical 20 percent down payment a huge hurdle to overcome.
In fact, a recent survey of renters who planned to buy a home found that 51 percent considered coming up with enough money for the down payment.their biggest obstacle. The Mortgage Insurance Companies of America survey also found that 84 percent of renters don’t expect to be able to come up with 20 percent, but that doesn’t mean the American dream is out of reach.
Consumers can finance a mortgage with a down payment of less than 20 percent through a variety of loan products. Some of these options include government-insured loans from Federal Housing Administation (FHA), and Veterans Administration (VA), as well as more-flexible privately insured conventional loans.
In addition, some loan originators have been promoting so-called “piggyback” or “split” loan structures, which require a first and second mortgage totaling an amount equal to at least 90 percent of the home’s purchase price.
For many typical home buyers, a single mortgage with cancelable private mortgage insurance (PrivateMI) makes more sense than “piggyback” loan deals. The Mortgage Insurance Companies of America (MICA) notes that these types of split loan structures, such as 80-10-10 mortgages, have very real downsides for a number of families.
In an 80-10-10 loan, the home buyer puts 10 percent down, borrows another 10 percent through a second mortgage with a higher interest rate, and finances 80 percent through a conventional mortgage. Alternatively, PrivateMI enables home buyers to put down as little as 3 percent, or even less for qualified borrowers. Unlike 80-10-10 loans, once enough equity is achieved along with a good payment history, PrivateMI premiums can be cancelled.
“For many first-time home buyers, saving a 20 percent down payment can be a daunting task. PrivateMI allows prospective home buyers the flexibility to buy the home they want without waiting,” said Suzanne C. Hutchinson, MICA executive vice president. “When comparing costs between a single mortgage loan with PrivateMI and a first and second trust in an 80-10-10 structure, the loan with PrivateMI is, in most cases, less costly to the borrower over the life of the loan.”
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