Don’t have 20 percent saved for a down payment on a home? You're not alone. The good news: Although 87 percent of first-time homebuyers think 10 percent (or more) is necessary, the average down payment among first-time buyers is 7 percent; for repeat buyers, it’s 16 percent.1 Some homebuyers put down even less.
But there's a tradeoff, if you do put down less than 20 percent when you buy your home, you may be required to pay private mortgage insurance, or PMI. PMI helps reduce the risk for the lender in case the borrower doesn’t repay their mortgage.
What you pay for PMI depends on your credit history and other factors, like how much money you put down. That said, PMI is generally around 1 percent or less of your mortgage balance each year.2 So a $300,000 mortgage could have a yearly PMI cost of around $3,000.
PMI can help you make your home buying dream a reality sooner. It can also give you confidence by allowing you to save some of your cash reserves for other priorities (versus putting it all toward a down payment). Here’s a look at the four most common types of PMI so you can evaluate the best choice for you.