Yes, you can still buy a home with little or no money down (in fact, Congress is hoping to make it much, much easier, in the near future!).

However, if you do, if you do get a loan for more than 80% of the appraised value, your lender will want you to take out what is known as “Private Mortgage Insurance” (PMI). This is an insurance policy that protects the lender (not you!) from losing its money, if (and when, ha-ha?) you default on your loan.

By taking out PMI, you may be able to lower the interest rate on your loan. (This is if you take out one single loan for the entire amount borrowed, say up to 100%.)

The alternative to PMI is to take out two loans, one for 80% and one for the remainder, up to 20%. The first loan will be at the typical interest rate, the second loan is usually at a significantly higher interest rate, say 2% higher. But, if you take out a second loan, you don’t have to get PMI.

So, you need to do the math to figure out which is going to cost you less, each month.

Also, keep in mind, there are tax implications for both. If you take out a second loan, you can usually deduct the interest paid, on your federal tax return (if you itemize). In the past, PMI was NOT deductible, but a law was passed last year making it deductible, so that benefit is no longer (the law was passed only for loans originating in 2007 and has not been renewed for next year, as of yet).

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Updated: 1st Quarter 2018

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