If you’re interested in purchasing one of the new homes in Colorado Springs CO, but know that you won’t have enough money available for the typical 20% down payment, you can still get a mortgage. However, you will probably need Private Mortgage Insurance (PMI).
Ultimately, PMI protects you if you default on your loan. Since conventional loans are not backed by the government, the way FHA loans are, the PMI is backed by a corporate entity and they will pay your lender to cover your costs.
Of course, that will mean you’ll be paying additional money, in addition to your loan. PMI payments range from around 0.3% to 1.15% of your home loan. Fortunately, the typical way to pay PMI loans to your lender is with monthly payments. You could also make your payments in an upfront cost at your home closing (assuming you have the funds), or you may be able to roll them into the cost of the loan. Lenders usually have various options and you can work them out – both short and long term – to see what best fits your financial situation now and in the foreseeable future.
Fortunately, PMI payments don’t last as long as regular mortgage payments. Once you have accrued at least 20% equity in your home, you can request that your lender cancel your PMI. If you aren’t sure about the equity in your home, you can at least feel comfortable knowing the lender must automatically cancel the coverage once you have 22% equity.
There are ways to avoid PMI insurance, but inherently you will be paying more and you’ll usually need to refinance at some point, which requires more work and may not come at a good time for interest rates. You could pay a higher interest rate, but this can’t be canceled and it will be up to you to try to refinance to a lower rate in the future. Piggyback loans are another option, which are smaller loans to cover all or part of the down payment. However, they typically have a higher interest rate.
With all of this in mind, at least know that PMI is tax deductible, though you will have to itemize your taxes if you want to claim it. Still, it can help cut your taxable income.
It is always worthwhile to explore all of your loan options and any potential extra fees when looking into new homes in Colorado Springs CO. The more you know, the better chance you have of getting a loan that works for you, while also getting you the home you want and need. Contact us today for help in finding that ideal home!Tags: homes colorado springs, homes for sale colorado co, new homes colorado springs co
Categorized in: Market news, New Home Tips, What Is PMI?
This post was written by Creekstone Homes