Private Mortgage Insurance is An Acquisition Cost

Private Mortgage Insurance (PMI) has a negative connotation and that’s too bad. The existence of PMI permits more people to participate in the personal and financial benefits of owning real estate.  I absolutely agree it is wise to have my own cash invested in the real estate I purchase with a mortgage. If you had to have 20% of the purchase price to acquire a primary residence would you be a home owner?  I wouldn’t have been.

PMI is a cost of acquiring a property. There are variety of costs associated with purchasing property and two of them are insurance related; homeowners and Title Insurance. PMI is just one more insurance closing cost.  But this one has benefits and it doesn’t have to be forever.  PMI is inexpensive for the power it produces.  A purchase price of $200,000 with 10% down and PMI of .41% of the loan requires and monthly payment of $61.50.  In a market where home values increase by 2.0% per years, that $200,000 house you were able to buy could be worth $204,000 next year. Your $738.00 PMI investment contributed to the appreciation of that property going onto the plus side of your financial statement.  Lenders tell me a PMI loan may qualify for a lower interest rate than a 20% down loan. Apparently the insurance could just about pay for itself in interest savings.

Given the choice of owning the house everyone wants by paying PMI for a relatively short period of time, or refusing to buy unless the house appraises for at least 100% of the purchase price, the long term smart choice might be to embrace PMI.  And that’s another reason to leave the appraisal contingency out of your Offer.

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