Absolutely! Even though the lender is the covered party, private mortgage insurance helps people afford homeownership by allowing them to put down less than 20%, benefitting borrowers in these 3 important ways:
1. Buy a house sooner
By allowing borrowers to put less money down on their home purchase (as low as 3%), many people can become homeowners years before they expected because they don’t have to wait until they’ve saved 20% of the purchase price to buy a home. Let’s go back to that original example to understand how:
A 3% down payment on that same $350,000 house would be only $10,500, which takes much less time to save than $70,000 (20%).
(Use our Buy Now vs. Wait Calculator to see how waiting to save 20% could actually cost you money!)
2. Buy more home
Even if you have enough money saved for a 20% down payment, you may still want to consider using MI.
Let’s say you have $30,000 in savings for a down payment on a house. If you wanted to use all your savings for a 20% down payment to avoid paying for MI, you’d be limited to buying a house that costs no more than $150,000. These days, it could be extremely hard to find a home that meets your needs at that price.
Instead, you could use MI to afford a $300,000 home and use your $30,000 in savings for a 10% down payment on the house, effectively buying more home with the same amount of savings. (Assuming, of course, you can afford the larger monthly payment that comes with that home. Use our monthly payment calculator to determine what that payment could be.)
3. Create cash flow
Another way to use MI to your advantage is to put less down and keep some of your savings for other purposes.
For instance, what if the house you’re buying needs a lot of work? If you drain your savings for a 20% down payment, you may have nothing left for other things, like buying new appliances, refinishing the hardwood floors, getting a lawn mower (welcome to homeownership!) or even creating a rainy-day fund.
