Why Avoiding PMI May Be Costing You Money

Stepping into the home buying arena for the first time? You're about to embark on one of the biggest chapters of your life. But here's the deal: there's a common mistake I see many newcomers make, and it's all about waiting to buy until you can avoid paying PMI—Private Mortgage Insurance.

Let me break down why dodging PMI in an effort to pinch pennies might actually be a misfire in your long-term financial strategy.

If you've got your eye on a $400,000 home. You might think you need to have $80,000 available for a down payment so that you can avoid paying PMI and throwing your money out the door. But in reality, you may be able to get in for as little as 3% down, or $12,000. More common, would be 5%, or $20,000 so let's start there. 

In this scenario purchasing with 5% is going to require you to pay PMI, and that number can fluctuate but let's get a little aggressive with it and say $150/month or $1,800/year. Nobody wants to waste $1,800 per year, but that's why we need to look at the bigger picture. 

In Dane County we've seen home values increasing by about 5% annually on average over the last decade. If we play it conservative and estimate a 3% appreciation, that $400,000 home is looking to bump up to $412,000 after just one year. Give it another year, and you're potentially sitting on a home valued at around $424,000 to $425,000.

So, by trying to outmaneuver an $1,800 PMI fee, you're essentially leaving about $12,000 in equity on the table in just the first year or $25,000 after two years. And what's worse? That number continues to grow every single year you wait to purchase. 

This whole PMI situation is a classic example of zooming out to get a clearer picture of the best path forward. While it might sting to pay that monthly PMI fee, it's actually your ticket to the homeownership ride, allowing you to jump into the market sooner rather than later and start building up some serious equity in a property that's going to appreciate in value over time.

Here at The Minter Team, we're all about empowering our clients with the knowledge they need to make great real estate decisions. It's not just about getting you into a home; it's about helping you understand the financial intricacies of these big moves. The PMI conundrum? It's just one piece of the puzzle. Our goal is to help you navigate these waters with confidence, ensuring that every step you take is informed, strategic, and ultimately, in your best financial interest.

Whether you're a rookie to the real estate game or you've been around the block a few times, remember: the key to success is a blend of knowledge, strategy, and a bit of courage to take the plunge. Don't let PMI deter you from your home buying aspirations. Instead, see it for what it truly is—a small stepping stone on your path to building lasting wealth and securing your dream home. Let's tackle this journey together, transforming potential hurdles into victories and aspirations into realities.

To get started on your home buying journey, connect with our team today at https://theminterteam.com/contact. We look forward to hearing from you.