You don’t need to put down 20 percent to buy a home! However, if you have a lower down payment than that your lender will likely require something called private mortgage insurance, which adds to the cost of your monthly mortgage payment.
While it often makes more sense to buy with a lower down payment and pay these monthly amounts, rather than wait until you can save enough for a larger down payment, the sooner you can get rid of PMI, the sooner you can lower your mortgage payment. So how, exactly, do you do that?
A recent article from realtor.com outlined different options for home buyers to get rid of private mortgage insurance, including:
Wait it out...
Your loan-to-value ratio (LTV) measures how much money you borrowed vs. the value of your home, and once your LTV hits 80% or lower, you may not be required to pay private mortgage insurance depending on the type of loan you have. So, if you don’t have extra funds available, paying your mortgage and PMI and waiting for your LTV to drop is your best option.
Make extra mortgage payments...
If you have extra cash to put towards your home, making extra mortgage payments will lower your LTV faster, and help you ditch your private mortgage insurance sooner.
Increase your home’s value.
Make home improvements...
Another way you can get rid of PMI is by making home improvements that increase your home’s value, like adding a bathroom or doing a full kitchen renovation. Once your improvements are done (and it’s been a year since you purchased your home), you can get your home appraised. If it appraises at a higher value enough to lower your LTV below 80%, you can ask your lender to reassess your situation.
Thinking about your PMI or even about making a move? Let's connect. We can help you navigate the current real estate market and maximize your return-on-investment either way.