Shelton Real Estate Market Update

Shelton Marketwatch:  December 7

Thursday, December 7

This past week in Shelton we had 14 new listings, 7 homes that went under deposit and 9 homes sold.

The benefits of private mortgage insurance (PMI)

Private Mortgage Insurance when buying a home in Shelton CT

When buying a home, you may have heard that you need at least a 20% down payment.  This simply is not true.  In fact, a new home can be purchased with as little as 3.5% down.  The only reason a buyer would need 20% down is to avoid paying Private Mortgage Insurance (PMI).  PMI is an insurance policy that reimburses the lender if a loan defaults.  While this may seem like a waste of money, there are some benefits to paying PMI.

The biggest benefit to paying PMI is to be able to purchase a home sooner.  This means that you can start investing in your future sooner.  The majority of mortgages are taken for 30 years.  The sooner you start paying on the mortgage, the sooner it will be paid off. This will result in reducing your living expenses.  By renting, your living expenses will only increase over the years.

Since it takes most first time home buyer's many years to save up a 20% down payment in order to avoid PMI, then it will be that much longer before a mortgage is paid off.  For example, the average single family home in Shelton sells for around $340,000.  In order to put down 20%, the buyer will need to come up with $68,000.  This does not even include closing costs, which could amount up to 5-6% of the purchase price.  Now, let's say the buyer takes out an FHA loans that only requires a 3.5% down payment.  This amounts to $11,900 plus closing costs, which can also be built into the purchase price. This way is usually much more manageable for those first time home buyer's.

What does PMI have to do with this?  Lender's will require PMI on any loan that does not have at least 20% equity.  Anything less would be too risky for a home lender if the borrower defaults.  PMI enables buyer's to purchase a home without having to have saved a great deal of money.  Otherwise, everyone would need a 20% down payment and many just wouldn't be able to do it. 

PMI can also be viewed as an investment since it allows a buyer to purchase a home sooner.  Most likely, the property value will increase that will result in a greater value than the total payments made on PMI. 

Some mortgage insurers are now providing additional benefits to the borrower, like job loss security.  If the borrower loses their job during the first two years of the loan, the insurer will provide payments to the lender for a set amount and a predetermined time period.  Be sure to ask your lender if this is available for you.

Unless you can afford a 20% down payment then it would make sense to use it to avoid paying PMI.  If you qualify for a VA loan, then that would be a good option because those do not require PMI.  

If you opt for an FHA loan in order to only have to come up with 3.5%, then just be aware that the PMI is for the life of the loan.  You will need to refinance after building 20% equity in your property in order to make the PMI go away.   With conventional (or regular) mortgages, the PMI will not be required once enough equity is built, but you may need to request the lender to take it off.

Here are the links to all the new listings that have come on the market in the last 7 days:

>up to $300,000

>$300,000 - $500,000 

>over $500,000 



Let me know if you would like a list of all homes available in
Shelton or any other town in Connecticut.  The list can be 
customized to meet the criteria of what you are looking for in
a new home.  Just contact me anytime and I'll get that to you
right away.

I'll be back next week with all new listings.

Joyce Marshall

ps. If you want to chat right now, give me a call at 203-305-0157

Joyce Marshall

Joyce Marshall is a real estate agent with Carey & Guarrera in Shelton, CT who is a specialist in residential home sales in and around the Shelton area.

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