So Now I Have to Get Mortgage Insurance?
Tue, Dec 27, 2011
This post was contributed by Genworth Financial.
The good news is that I just finished paying off my college loans. The bad news is that my husband and I are about to buy a house – which means we can look forward to mortgage payments for the rest of our lives.
All in all, this has been a sobering process to say the least. We have no assets to speak of (I have a Roth IRA that I never managed to grow past the minimum contribution). And he has parents who’ve agreed to fork over some cash to help us out. We’ve been making our own coffee for five years now, which has saved greatly on cappuccino expenses (between the two of us, that’s almost $12K that we’ve stashed away for the sole purpose of a down payment on a home). But it’s still not enough.
We both have jobs (thankfully), but are hyper-aware that we could lose them at any moment in this economy. Sometimes we ask ourselves if buying a home is worth it. The security of homeownership is no longer a certainty.
But we still come back to two key ideas that spur us onwards. The first is that any way you look at it, renting is tossing money away and precluding the possibility of building equity. The other is more emotional; we’re a young couple and we want to build a life together – we want to create a home.
So even though we seem to keep coming up against some wall or another, we always return to our sense of conviction that this is the right thing to do at this point in our lives.
Since we don’t have the requisite 20% for a down payment, we are required to get yet another loan, this time to protect the lender. Frankly, when it was put to me that way, I almost hit the roof. However, once I educated myself about private mortgage insurance, I calmed down… significantly.
What is private mortgage insurance?
Private mortgage insurance (MI) protects lenders from foreclosure losses on low down payment loans. Not to be confused with any sort of sub-prime fiasco, MI allows you to buy your home with minimal down payment. For many, there’s no other way to achieve this particular part of the American dream. Not only that, but it ensures that we’ll have more cash on hand in these early days for emergencies, any work that needs to be done on the house, or just paying off debt.
Isn’t there something called FHA, and how is it different from MI?
Federal Housing Administration (FHA) mortgage insurance is a government program backed by taxpayers. MI is the private sectors’ answer to that. The two key differences between them are:
- Private MI typically may be cancelled sooner (which is a very good thing)
- Private MI is available on a wider variety of loan products.
Are MI premiums tax-deductible?
The short answer is yes – and not just for first-time homebuyers. Household income and marital status affect deductions.
Are there any other benefits?
YES! For example, Genworth Financial offers Job Loss Protection to help with mortgage payments in the event that we lose our jobs. The company also offers a Counseling Saver that gives a mortgage insurance discount after eight hours of pre-purchased classroom homebuyer education on budgeting, personal finance, and homeownership. And hey, who couldn’t use a little help?
It’s nice to know that even though buying a home feels a little like jumping into an abyss, there are ways to protect yourself.
hey interesting post but um i can't read it properly. The stuff on the right hand side is cutting the words off. You'll have to look into formatting.
What browser are you using? It looks normal in both Chrome and Safari. Let me know - thanks!
@andrea - it's cut off in ios - browsing from an iPad.
Ugh, just looked on mine. Looks like I'm going back to a mobile version even though I REALLY don't want to. Thanks for letting me know!
I HATE when people say renting is throwing money away!! It is NOT! It secures a roof over your head. Housing is a necessity (albeit not one everyone can afford in this economy) and buying a house is a privilege (again not one many can afford to do now). Granted you could live with relatives or in a shelter but these situation are not ideal for everyone or even a possibility.
Having been both I like the piece of mind renting brings me. When our basement flooded who had to dish out thousands of dollars to replace the hot water heater and furnace…not me! Who had to pay thousands to serve pro to dry out and clean the basement…not me! Who has to pay someone to shovel snow in October… not me. Lawn care….not my problem. New fire rated doors…not mine either. Leaky tub…I let you guess who paid for that repair. Now I have had my share of slumlords and in those instances wished we weren't renting from who we were but then we had the freedom to get up and move to a new place with just 30 days notice.
I am not against either option but when people say I am throwing my money away renting it makes me feel like they are saying Oh I am better than you cause I own a house! or You're stupid to be renting. I did the math and where we live now is expensive not only in house prices but taxes. We also don't know where we want to buy (state wise). Our rent is so cheap compared to buying where we live that the difference has allowed us to save save save. Having that liquidity makes me feel safe and happy!
((Off soap box)).
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I agree with you completely. I enjoy renting, and while I'll probably own a home again at some point, I've never felt like I threw money away. Exchanging money for a place to live is a pretty good deal compared to the alternative, if you ask me.
I agree with Jesort - renting is not throwing your money away. And frankly I can rent in a nice neighborhood for far less than what buying here would cost. Please understand too - you are renting your house - just from the bank (think "rent to own"). If you are lucky the house will be worth more than the original purchase price when you sell. If you are *really* lucky it will be worth more than you actually pay for it - only some interest is tax deductible - and don't forget maintenance/upgrade costs.
Renting or buying - very personal decision and for different folks at different stages in life - different answers. Two additional things though: (1) go to NY Times and search for rent vs. buy - there is a great tool that let's you put in all of your economic assumptions and tells you at what point in the purchase process you are better off than renting. We live in a HCOLA area - and the answer is only AFTER the house is paid in full in 30 years. (2) Do you have an EF that can cover basic expenses for 6 months? Do you have a house specific EF? Can you buy and have money left over? Without gifts from family? You may be debt free - but I don't know if you are ready to buy a house. Trust me - no matter how well inspected or new or what kind of guarantee you have - it will cost you to maintain.
OK, great great article! I am in the same boat as you and have been hearing the PMI thrown about a lot. But you mentioned PMI can be cancelled…just how soon can it be cancelled? After 12 months, 24 months or more? Does it depend on your state of residence?