Paying for mortgage insurance can be a significant addition to your monthly housing costs, but there are strategies you can employ to avoid this expense when securing a home loan in the U.S. Here are some effective methods to eliminate or reduce the need for mortgage insurance:
One of the simplest ways to avoid mortgage insurance is to make a larger down payment. Most conventional loans require mortgage insurance only if your down payment is less than 20% of the home's purchase price. By saving up to reach this threshold, you can save yourself the added cost of insurance.
Some lenders offer a option called Lender-Paid Mortgage Insurance (LPMI). In this case, the lender pays the mortgage insurance premium upfront in exchange for a slightly higher interest rate. This can be a good strategy for those who want to avoid upfront costs while still securing a lower monthly payment.
Many lenders now offer no-mortgage-insurance loans, which are designed for borrowers who cannot make a 20% down payment but still want to avoid mortgage insurance costs. These loans usually feature higher interest rates and may have specific requirements regarding credit scores or debt-to-income ratios.
If you are a veteran or an active-duty service member, you might qualify for a VA loan, which does not require mortgage insurance. Similarly, USDA loans for rural properties also do not require mortgage insurance, making them an attractive option for eligible borrowers.
Another strategy is to consider paying for mortgage insurance upfront at closing. While this option may involve a higher initial cost, it eliminates the monthly insurance payment and can be beneficial if you plan to stay in your home for several years.
A higher credit score can help you qualify for better loan terms, including the possibility of avoiding mortgage insurance. Aim to improve your credit score before applying for a mortgage by paying down debts and ensuring timely bill payments.
A piggyback loan involves taking out a second mortgage simultaneously with your primary mortgage. Typically, you'll finance 80% of the home with the primary mortgage and an additional 10% with the second mortgage, which allows you to put down only 10% and avoid mortgage insurance altogether.
Not all lenders have the same mortgage insurance requirements. By shopping around, you can find a lender who offers favorable terms and might even waive the mortgage insurance requirement based on your financial profile.
Implementing these strategies can help you avoid the added cost of mortgage insurance on your home loan in the U.S. By planning ahead and exploring your options, you can save thousands over the life of your mortgage.
