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It seems as though inflationary pressures are making everything more expensive lately. On top of the usual issues this causes, it’s clear that many employees aren't earning quite enough to deal with these rising costs, including rent increases that make it feel impossible to afford reasonable housing. Homeownership may combat the rising cost of rent for those who go this route, but the housing market shifted significantly with the COVID-19 pandemic, so there are some challenges out there.
Firstly, alongside rent, inflation has skyrocketed home prices and mortgage interest rates. With the average cost of living substantially higher post-pandemic, people who already own homes are staying put, which also dampens the market somewhat. Still, one of the biggest, albeit surprising, glimmers of hope despite the fluctuating property market is mortgage insurance.
Though mortgage insurance may increase how much you pay in monthly mortgage payments, the benefits of this protection prove substantial for those who want to buy a house amid inflation. Property market stabilization and mortgage insurance go hand-in-hand. Continue reading to learn how.
Owning a home isn't just part of the American Dream; it signifies financial security and freedom. It's also one of the best ways to build wealth.
According to a recent ABC News report, people who own their homes have 38 times more wealth than those who rent. In 1992, the average homeowner was 30 times more wealthy than a renter. So, the financial benefits of homeownership are on an upward swing.
In addition, due to rising housing costs, someone who bought a house years ago is passively growing their wealth faster than anticipated. They can start a business, pay for higher education, start a family, and so on, while renters don't have the same luxury. In fact, without significant accumulated wealth, renters often struggle to afford a substantial down payment on a house.
According to RentCafe, the average rent price in the country is over $1,700 for an apartment of around 900 square feet. That's a dramatic increase from previous years, with rent prices almost 30% higher than the pre-pandemic levels. However, the increase in rent and everyday items doesn't seem to sway Americans from pursuing homeownership.
According to a Bankrate survey, roughly 75% of American adults agree that homeownership is still part of the American Dream. Interestingly, the same survey reports that almost 65% of adults who don't own homes say affordability is what's keeping them from owning residential property. Could mortgage insurance be the key?
Dealing with the housing market as a prospective first-time homeowner is more challenging now than it's been in years—everything from housing inventory to mortgage rates impacts who can afford a home.
Take mortgage loan rates, for example. According to the Federal Reserve of St. Louis, the 2024 average interest rate for a 30-year mortgage is 6.88% and 6.22% for a 15-year term. Reuters reports that the average interest rate for a 30-year fixed-rate mortgage in 2023 was 7.9%, the highest rate since September 2000.
Though the current housing industry trends show that interest rates are slowly declining, they're far from previous lows.
Housing inventory is another problem. The U.S. has a long history regarding the supply and demand for houses with the country's growing population. However, increasing material costs, labor shortages, and supply chain problems since the global pandemic have made it much harder for buyers to find quality housing.
Inflation and higher rent prices are also contributing to the housing shortage. People who already own homes are not selling their properties at a fast enough rate. They're staying put instead of re-entering the real estate market to downsize or upsize because it is cheaper that way.
Nationwide, home prices are higher than ever, thanks in large part to supply and demand and rising home loan interest rates. The National Association of Realtors reports that the median home price in March 2024 was around $379,000. People buying homes in the current housing market are spending over 30% of their income to do so.
Unfortunately, many people's earnings don't yield enough buying power. The average home-value growth and inflation rates are outpacing wage growth. If it seems harder for you to earn enough to maintain your lifestyle without managing to save for a home down payment, your assessment may be correct.
Many experts are pointing to private mortgage insurance as the answer to the housing sector's problems. Why? The high costs associated with buying a home and inflation make it tough to save for a down payment, and mortgage insurance makes the entire process a little easier.
Before delving into how private mortgage insurance works, let’s talk about mortgage loans and down payments. People seldom make cash purchases for houses. Instead, they rely on home loans, which typically require a down payment.
The general assumption is that homebuyers must make a deposit worth 20% of the property's price. However, there's no rule or law that mandates a down payment that high for a mortgage loan. Most first-time homebuyers pay less than that with the help of private mortgage insurance.
This private mortgage insurance offers financial protection to loan lenders. If you cannot possibly make a 20% down payment on a home, you can just buy mortgage insurance and pay a smaller amount. You could achieve homeownership faster that way despite the rising costs of living.
You could use one of many loans to buy a house, and they all have different down payment requirements. Some require as little as 3%, while others reach 10% to 15%.
Anything under 20% will require mortgage insurance., which will likely roll into your monthly mortgage payment. The idea is that if you stop paying your mortgage premiums or fall behind on payments, the insurance will recoup most or all of the lender’s losses.
The most common type of mortgage insurance is borrower-paid mortgage insurance. With this variety, you'll make monthly payments. A lender-paid mortgage insurance policy will have your lender pay for coverage at closing but raise your loan's interest rate to cover what they pay.
So, private mortgage insurance protects lenders, but the option of a smaller down payment on your house isn’t anything to sniff at.
Mortgage insurance helps you with the following and more:
It seems that without mortgage insurance, the housing market would be substantially worse than it is. The ability to save tens of thousands to purchase a home isn't a reality for many, including people who want their own residence. Private mortgage insurance lessens the financial burden by providing access to groups who would otherwise not have a chance at homeownership, such as:
A lack of income, credit lines, and assets has a history of locking people out of the housing market or subjecting them to predatory lenders. It's no secret that low equity often comes with higher risks for the lender. For instance, if a homeowner without sufficient equity loses their income, selling their home likely won't be enough to pay off the mortgage loan.
But that's where private mortgage insurance comes in.
Having this insurance opens up opportunities for first-time homeownership or benefits existing homeowners who want to refinance their loans or relocate. The more people have access to the real estate market, the greater the chance that the current housing industry trends will even out. PMI is a gateway to accessibility, affordability, and flexibility, and it’s freely available.
The real estate market is ever-changing. With the 2020 COVID-19 pandemic, Americans saw extreme fluctuations in the housing sector regarding inventory, home prices, and home loan interest rates. Today, many people wonder if owning a home is still feasible. It is.
Mortgage insurance empowers prospective home buyers without great incomes, perfect credit scores, or the substantial 20% cash down payment to buy a new home. Since mortgage insurance helps a diverse group of people own property, it plays an integral role in stabilizing the housing market. When you're ready to embrace the "homeowner" title, consider using mortgage insurance so that you can make a smaller down payment and find your way into homeownership sooner.
Insurdinary partners with some of the best insurance providers in the industry. Our convenient online system makes it easy to explore different insurance products for the best rates and apply for affordable coverage. Start comparing free insurance quotes with Insurdinary today by completing our online form!