As real estate agents know all too well, today’s homebuyers are navigating one of the most difficult housing markets in recent memory, and affordability has become a major obstacle. Home prices are at the highest levels ever recorded, there is limited inventory to choose from, competition for affordable homes is still fierce and recent mortgage rate increases have sapped some of their purchasing power. Buyers are stressed—exhausted by the process and strained financially by the increasing cost to buy.
Mortgage insurance (MI) may be the key to helping more buyers afford a home in this environment. It works by lowering the traditional 20% down payment barrier, which has become increasingly difficult for buyers to save up. With the median price of a home in the United States now above $300,000, that means buyers need to have more than $60,000 saved for a 20% down payment. With a 3% down payment loan made possible by private MI, those buyers only need about $9,000.
Thinking of MI as an advantage for homebuyers requires a change of perspective for many agents who are used to viewing it as something to be avoided at all costs. But consider this: MI has a range of benefits that can help struggling buyers achieve their dream of owning a home even in this challenging market.
Here are four significant ways MI can help buyers:
- Afford a home sooner. Waiting to save a 20% down payment can be a huge barrier for many homebuyers. And, as home prices continue to rise, the savings needed also increases. With private MI, a buyer may be able to purchase a home with as little as 3% down and begin to build equity and long-term wealth.
- Increase their budget. If your buyer is struggling to find the right home in their price range, MI can help increase their purchasing power by putting a lower percentage down on a more expensive home. For example, a buyer planning to make a 20% down payment on a $300,000 home could use those same savings to put 15% on a $400,000 home if they qualify for the loan amount.
- Cover an appraisal gap. MI can be a simple and nearly seamless solution that may also work for buyers facing an appraisal gap. In certain instances, MI may be used to shift the loan-to-value ratio (LTV) and restructure the loan so buyers can cover appraisal gaps and still have enough money to meet minimum down payment requirements.
- Preserve their savings. Even for buyers who could afford a 20% down payment, they may still prefer a lower down payment with MI as an opportunity to set aside some cash as a cushion for uncertain economic times.
Keep in mind that most MI products are temporary. Once the homeowner makes a certain number of payments or the property appreciates to a certain loan-to-value ratio and meets loan seasoning requirements, the insurance may be eligible for cancelation. When home prices go up rapidly, as they have in recent years, the payment can drop away even faster.
It is time to change the mindset on MI to a benefit—not a burden—for those who need it. MI helps millions of buyers achieve their dreams of homeownership each year, and it may be able to help your clients, too.
Visit radian.com to learn more about private MI and educational resources for homebuyers.
As EVP of Mortgage Insurance Sales at Radian, Marshall Gayden is responsible for the strategic direction and leadership of Radian Guaranty’s national sales force. During his 35-year tenure in the mortgage industry, Gayden has led high-performing sales teams in retail, consumer direct, wholesale/correspondent lending and mortgage insurance.