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PMI: A real possibility for first-time home buyers BY ETHAN GROOTHUIS CARVER COUNTY NEWS As the housing market continues to bounce back, new young homeowners may be on the prowl for their first place to call home that isn’t an apartment or a parent’s basement. Whether it be the classic white picket fence, enough bedrooms for a future family, or that dream patio for barbecues, the perfect place is out there — for a price. Unfortunately, a mortgage payment is not the only thing that is nearly inevitable for starting that dream home. Private mortgage insurance, or PMI, is waiting in the ranks for any homeowner who isn’t able to afford a 20 percent down payment. Basically, PMI protects lenders against loss if a borrower defaults. Donna Mason, owner of Lakes Realty in Waconia, sees this issue a lot when selling to young buyers. “I always recommend avoiding (PMI) if it is possible, but for first time home buyers, it is hard to find that,� Mason said. “Most of your down payment is 5 percent down. So the PMI, it’s not an option. You have to pay it if you want the mortgage.� While PMI benefits primarily lenders, Mason points
out, without a significant down payment, banks and lenders are putting a lot on the line. “We (relators) understand that it is a necessary evil,� Mason said. “Unfortunately it is not inexpensive — it is quite expensive.� PMIs typically cost 0.5 percent to 1 percent of the cost of the total loan on a home. For example, the average American home costs about $230,000 and if the mortgage on that home has a PMI, the homeowners would be paying upwards of $200 a month. But PMI payments don’t need to last forever. After a few years of payments, a homeowner can reappraise their house. If it is above 20 percent of the total price, the PMI can be removed. “I absolutely recommend reappraising,� Mason said. “It does cost money to have that done — $400 or $500. But if your PMI is $150 dollars a month, it doesn’t take long to cover that.� Mason urges that if someone feels they may be close or exceeding the 20 percent equity target, they should get their mortgage reappraised, but reminded that crossing the equity threshold does not automatically remove PMIs. As a realtor for 30 years, Mason is still working to help
out buyers and sellers of all ages, even if they aren’t reaching the ideal down payment price. “I love my job,� Mason said. “And now, it is a really, really good market.� For more information on Lakes Realty, go to http:// www.donnamasonrealestate.com. Those seeking help on reappraisals, PMIs or general mortgage questions, check out the federal Consumer Financial Protection Bureau at http://www.consumerfinance.gov/. nance.gov/. Contact Ethan Groothuis at ethan.groothuis@ecm-inc. com
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