When taking out a mortgage, it has usually been standard practice to put down 20% toward the price. Now, via a post from GoBankingRates.com, the National Association of Realtors discovered in 2021 that homebuyers are putting down less money than ever before on their mortgages.

That NAR research showed that the average homebuyer put just 12% down on their mortgage. Homebuyers that were under age 30 put down only 6%. Granted, a big factor for this age group could be the continued rise of home prices across the country, but 25% of buyers in this age group said that saving for a down payment was the most difficult step in buying a house. Student loan debt was the other big factor, affecting 43% of buyers ages 22 to 30.

While it may seem advantageous to get a mortgage with less than 20% down, private mortgage insurance, or PMI, may make you think twice. This is insurance that gets paid to your lender. PMI can usually set you back anywhere from 0.2% to 2% of the total loan according to Experian, but costs will vary depending on your credit score as well as the loan-to-value ratio of the home in question and your insurance provider. Basically, PMI will protect the lender should you fail to make your mortgage payments.

Okay, So What About The Good News?

The good news is you do not necessarily have to pay PMI for the life of the loan. There are several ways to get PMI removed from your mortgage.

First, your PMI will venture off into the sunset from your mortgage payments once you’ve paid 22% of your home’s appraised value. Once you’ve hit 20% paid off though, you can call your lender and ask them to remove the PMI. Doing so could save you a few thousand dollars before hitting the 22% mark.

The second is to have your home reappraised. As home prices soared nearly 17% between December 2020 and December 2021, your home may be worth a lot more already than what you initially paid for it per the NAR data. For example, if you obtained a home for $300k in 2020 and put 10% down, your initial home loan was for $270k. Then, if your home is now worth $345k – a 15% jump – you’ve reduced your loan to value ratio to hit the 20% number in home equity. Don’t forget though, that reappraisals usually don’t come for free, so make sure to take into consideration your potential savings.

Finally, you can look to potentially eliminate PMI by refinancing your home loan. In turn, this will come with an appraisal which will determine your home value as it stands today. As we all know though, interest rates continue to rise, so a refinance may not be your best option unless you could potentially qualify for a lower rate in the market today.

As always, make sure to crunch your personal numbers to see what makes the most sense for you, and be sure to work with your qualified finance professional.

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