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For most people buying a house is the biggest purchase they'll make. 

Right now interest rates are incredibly low which is encouraging some people to consider house hunting. Perhaps they finished paying off their high-interest debts and they're saving for their down payment.

Some may worry that by the time they get the 20% down the rates will have gone up. They wonder if they should take advantage of this situation or if they should wait it out.

The answer is – run the numbers. For those who want to buy a house in the near future and have smaller down payments, one option is using mortgage insurance.

How Mortgage Insurance Helps

Private mortgage insurance is typically a requirement from the lender to protect themselves.

If you as a borrower put down less than 20% for the down payment, you are statistically higher risk than someone who puts a bigger down payment.

For some people interested in taking advantage of the low interest rates with mortgages, there are some advanatages of having private mortgage insurance:

  • Mortgage insurance premiums are tax deductible
  • Avoid higher interest rates of a second loan
  • Monthly mortgage insurance may be cancelled

Use one of the free mortgage calculators online to get an idea of what the costs would be for you and your family. If you're curious and want to learn more, Genworth has some information about mortgage insurance.

Buying a Home with Less Down

Whether or not you use mortgage insurance with your house purchase, it's in your best interest to sit down and get on top of your financial situation.

Having a smaller down payment means you have to be even more aware of your finances and get them in check than if you had the 20% down.

If you're looking to buy a house, you should have:

  • Having a decent size emergency fund. Being a home owner means that you have to take care of your own repairs. Having some money in savings can help make a bad situation less stressful.
  • Pay down high interest debt. Having a high amount of debt can ruin your chances of getting a loan or at the very least exclude you from the best rates.
  • Have some buffer in your monthly budget. Don't put yourself in a sticky situation. Even though you're making a  smaller down payment, you monthly budget should make it feasible for you to be a home owner and still meet your other financial goals.

Bad things happen in life. If you happen to hit a snag having a  safety net will prove invaluable.

Thoughts on Buying a Home

How many of you put less than 20% down on your home? How did you finance it? How long did it take for you to cancel the mortgage insurance?

Photo Credit: Images_of_Money

Disclosure: Information sourced from Genworth Financial

About Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

3 comments add your comment

  1. We bought our condo with only 3.5% down as part of the first time home buyer’s program. While we got a pretty low rate on our mortgage, unfortunately, our home value has fallen 25% in the last year and a half. While this is only an issue if we wanted to sell, we’re a little disappointed that we can’t refinance our mortgage at the even lower interest rates that are available right now (not to mention the money we would have saved if we had waited even six more months to buy).

  2. I have to say based on my experience, one should really look at what their needs are before buying a house that may be out of their budget.

    I bought my town house using an 80/20 loan in 2005 and just a few months ago, I finally paid back my “down payment” i.e. my second mortgage so that I could refinance my first.

    It was long battle, but I won.

    One of down sides of PMI is that it’s not tax deductible hence the reason I didn’t go down this avenue when I first bought my house