Handshake icon First-Time Home Buyers

The decision to purchase a home is a big one and shouldn't be taken lightly. It's important to make sure you're in the right financial situation before you undertake what is likely to be one of the biggest purchases in your life.

For those considering the pros and cons of buying versus renting, one thing to consider is the ability to build equity in your investment in lieu of simply paying your landlord rent. Consider this example:

  Buying a Home Renting
Initial Cost $5,250 Down Payment Security Deposit
Monthly Payment $925 (Principal/Interest/MI) $905
Five-Year Cost $55,570 $54,300
Five-Year Appreciation (1%/year) $8,926 0
Five-Year Tax Savings (18%, Interest Only) $5,285 0
Five-Year Equity Increase $15,897 0
Net Expense $30,711 $54,300
Benefit $23,589 Less Than Renting

House = $175,000 home / 97 LTV loan at 3.75% / MI rate bpmi 99 basis points. Two-bedroom apartment = $905 per month

Once you factor in the ability to build equity, the tax savings on mortgage interest, and the likely increase in your home's value, it's easy to understand why buying a home is an attractive alternative to renting.

Once you decide to buy, saving enough for a 20 percent down payment is a big obstacle for many first-time home buyers. Private mortgage insurance from United Guaranty helps reduce the lender's risk of loss, allowing them to offer mortgages to borrowers with down payments as low as three percent. That three percent can often come from gift funds—meaning you can get help from your relatives on your down payment.

Home Purchase Price 20% Down Payment (without MI) 10% Down Payment (with MI) 5% Down Payment (with MI) 3% Down Payment (with MI)
$200,000 $40,000 $20,000 $10,000 $6,000
$300,000 $60,000 $30,000 $15,000 $9,000
$400,000 $80,000 $40,000 $20,000 $12,000

United Guaranty participates in Fannie Mae's HomeReady® and Freddie Mac's Home Possible® programs. These programs are designed to help make loans more accessible and more affordable for first-time home buyers. By tailoring programs for first-time home buyers, conventional mortgages become more attractive than government-backed FHA loans. For example:

United Guaranty Performance Premium® FHA
Borrower-Paid Monthly Lender-Paid Single FHA Financed

$85
Monthly MI Premium
51 basis points

$3,920
Up-front MI Premium Paid by Lender
196 basis points

$3,500
Up-front
175 basis points

+
$141.67
Monthly
85 basis points

$1,025.47
Monthly Mortgage Payment

$998.57
Monthly Mortgage Payment

$1,055.47
Monthly Mortgage Payment

3.875%
Interest Rate
4.375%
Interest Rate
3.5%
Interest Rate

Five-Year MI Savings
$7,144
Compared to FHA

Five-Year MI Savings
$8,546
Compared to FHA

 
Total MI Cost for the Life of the Loan

$9,350

$15,746

$36,379

Assumptions: Base loan amount $200,000, two borrowers, 760 credit score, 41% DTI, 30-year fixed-rate purchase loan, 18% charter coverage, single-family house, stable market, 97% LTV United Guaranty, and 96.5% LTV FHA. Performance Premium pricing as of May 12, 2014. FHA rates from FHA Mortgagee Letter 2015-1.

HomeReady® is a registered mark of Fannie Mae. Home Possible Advantage is a service mark of Freddie Mac.

Home Buyer Training

In order to participate in some of these first-time home buyer programs, both Fannie Mae and Freddie Mac require borrower training programs.