{"id":769,"date":"2018-05-07T18:14:23","date_gmt":"2018-05-07T18:14:23","guid":{"rendered":"http:\/\/www.mikeclover.com\/blog\/?p=769"},"modified":"2018-05-07T18:14:23","modified_gmt":"2018-05-07T18:14:23","slug":"down-payment-myths-to-ignore","status":"publish","type":"post","link":"https:\/\/www.mikeclover.com\/blog\/2018\/05\/07\/down-payment-myths-to-ignore\/","title":{"rendered":"Down Payment Myths to Ignore"},"content":{"rendered":"

\"Beautiful<\/a><\/p>\n

If you\u2019ve begun saving up for the down payment on a home, and if you\u2019ve mentioned your goal to friends and family, you\u2019ve probably been getting plenty of advice.<\/p>\n

Some of it, of course, is good advice. For instance, Mom or Dad might tell you that small savings do add up \u2013 so skip the morning stop for coffee and brew yours at home. Also, skip the visits to the local caf\u00e9 or deli and take your own lunch to work.<\/p>\n

Other advice you\u2019ll get is not so good. In fact, some of it is pure myth. For instance:<\/p>\n

You must have 20% down. <\/strong><\/p>\n

Once upon a time that was mostly true. Today it is not. Today\u2019s truth is that if you want to avoid paying mortgage insurance on a FHA or Conventional loan, you must have 20% down.<\/u><\/p>\n

FHA (Federal Housing Administration) loans require only 3.5% down, while a VA (Veterans Administration) or USDA (United States Department of Agriculture) loan can be approved for 0% down. Conventional loans can also be approved with less than 20% down, but you will pay for Private Mortgage Insurance (PMI).<\/p>\n

What is PMI? It\u2019s insurance you buy to cover the lender\u2019s loss in the event that you default. It does not insure your interests in any fashion. The cost, which is added to your monthly payment, is generally \u00bd to 1% of the loan amount.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 On a $200,000 loan with a 1% PMI fee, a borrower would pay an additional $2,000 per year, or $166.67 per month.<\/p>\n

It\u2019s smart to pay as little down as possible, even with PMI.<\/strong><\/p>\n

The theory is that even if you have the money to pay 20% down, you should pay as little as possible and keep your cash in the bank for emergencies. There\u2019s some value to that idea, but do calculate the cost before making a decision. That extra $2,000 per year in the example above could be going back into a savings account.<\/p>\n

You should also consider the type of loan you\u2019ll be getting.<\/p>\n

If yours is a conventional loan, the PMI will \u201cfall off\u201d when your principal balance drops to 78% of the purchase price. If it\u2019s an FHA loan, the mortgage insurance will remain until the house is paid off or you refinance into a Conventional loan with at least 20% equity.<\/p>\n

You should never pay more than 20% down.<\/strong><\/p>\n

Some will say \u201cWhy pay more than you have to?\u201d<\/p>\n

For two very good reasons:<\/p>\n