What are the pros and cons to paying PMI?
PMI makes home ownership possible for those people who make less than a 20% down payment. Mortgage Insurance companies were created to offer additional protection to lenders in the case of default (foreclosure). That then encouraged lenders to make higher loan-to-value loans. Another benefit to having one loan with PMI (hence not splitting the loan to avoid PMI) is that many first time home owner programs offer expanded approval guidelines that are available only if the loan has PMI. So in summary, there are more possibilities for qualification. PMI is tax decutrible as long as your annual income is less than $100,000. For this reason, some people decide to split their financing between two loans so that they may increase their deduction. For homes less than $100,000 the deduction may not outweigh the costs. Your mortgage consultant can help you calculate this.
