The economic tool used to allow people with less than 20% down payment to buy a house is called PMI, private mortgage insurance. The insurance policy is property specific and it is in place until the borrower has paid enough principle into the loan- totaling 20%. The goal of this PMI is to fund the premium on an insurance policy that becomes paid to the bank/ note holder if the borrower defaults on a loan that was underwritten within the legal parameters. I make this last comment because during the days of predatory loan companies, PMI was not paid to those companies, instead they got the property back with the ‘note’. The common business practice is to package and sell loan ‘Note’ to a large corporation- ie Fannie Mae or HUD.
While the foreclosures have slowed to a creep, the reduction in the overall cost of this PMI insurance is concerning because it allows people to be highly leveraged once again- putting our housing economy at risk. Owners need equity or ‘skin in the game’!
If you read other articles on the site, you will see that I am a self proclaimed realist and my reality is that my house is currently a tax deduction tool, but otherwise, it looses me money on paper every month because of continued capital improvement projects, time invested maintaining a clean and healthy home.
Making homes more affordable is accomplished by building homes with a longer life cycle cost. If water heaters, furnaces, roofs, garage doors, windows, etc all lasted 40 years, you would have an affordable house. Although the reality is water heaters are listed as 8-12 year life cycles, furnaces 15-20 years, roofs upto 40 on a new well vented dimensional shingle, etc! Even in a new house, you have replacement costs within the first decade of ownership!
I would recommend to Buyers in this buying environment to circumvent the 20% down payment by looking at grant dollars- local, state and national OR waiting until the bank account reflects 20% and the loan payment will allow you to attain your personal financial goals.
I give this reduction in PMI a thumbs down!
Call to Action- if you need help with personal financial goals or want more information on local, state and national grant programs- contact me! John Payne 513-500-7474
