A new survey released Thursday reveals a growing number of homebuyers have to purchase mortgage insurance (MI) along with their home—and many aren't prepared for the additional cost.
According to research results put out by TD Bank, 37 percent of homeowners who purchased within the last decade required MI. Looking at just the last two years, that number is up to 43 percent, reflecting the troubles buyers are having meeting normal down payment minimums as home prices march up.
Of those who have had to go with insurance, 65 percent said the additional premium left them paying a higher monthly payment than they had originally anticipated, and 53 percent reported experiencing a negative impact because of that additional cost, which averages about $100 per month, the bank estimates.
"PMI [private mortgage insurance] has had a definitive impact on many home buyers—including making them rethink or delay the purchase of a home in light of not being able to meet monthly mortgage payments," said Michael Copley, EVP of retail lending at TD Bank.
The effects of MI costs are felt the most among Millennial homeowners, 43 percent of whom were not able to make the normal 20 percent down payment and required insurance. Among Gen X-ers, 37 percent of recent buyers have needed MI, while less than a quarter—23 percent—of Baby Boomers have needed it.
Millennials were also more likely to say insurance requirements impacted their homebuying decisions, with 30 percent either delaying their purchase or going with a smaller home. Meanwhile, nearly half of that age group said they've had to cut back or delay purchases of other items in order to handle the higher cost.
With the Federal Housing Administration (FHA) now requiring mortgage insurance for the entire life of its loans, Copley urged would-be buyers to explore all avenues available to them if they're unable to make a 20 percent down payment.
"While FHA loans may be available, home buyers, especially first time buyers, may not realize the options available to them that don't require PMI insurance," he said. "Prospective buyers should meet with a lender or financial institution to find a loan solution that meets their needs and monthly budget."