Private Mortgage Insurance (PMI) can significantly add to your monthly mortgage payment if you're unable to make a substantial down payment on your home. However, there are several strategies you can employ to avoid this additional cost. Below are effective methods to help you bypass paying PMI.
The simplest way to avoid PMI is to put down 20% or more of the home’s purchase price. This shows lenders that you have a significant stake in the property, which decreases their risk.
A piggyback loan, also known as an 80-10-10 loan, involves taking out two mortgages simultaneously—one covering 80% of the home value and the second covering 10%. The remaining 10% can be your down payment. This method allows you to avoid PMI since the first mortgage is for 80% of the home’s value.
With Lender-Paid Mortgage Insurance, the lender covers the cost of PMI, typically in exchange for a higher interest rate on your mortgage. While this means you won’t see a separate PMI premium, it’s important to calculate whether this option may be more cost-effective in the long run.
Insured loans like FHA, VA, or USDA may come with lower or no PMI requirements, depending on your eligibility. For example, VA loans, available to qualified veterans and military service members, do not require PMI at all. Researching these options can provide significant savings.
Some lenders offer mortgage products that do not require PMI, even with lower down payments. These loans often come with higher interest rates, so make sure to do your calculations to see if it’s a worthwhile option for you.
If you already have a mortgage with PMI, consider refinancing once you’ve built up enough equity in your home. If your property value has risen, and you’ve paid down your loan, it may be possible to eliminate PMI by refinancing and taking out a new mortgage with better terms.
Keep an eye on your home’s market value over the years. If property values increase significantly, you may reach the 20% equity threshold sooner than expected. When this happens, you can request to have PMI removed from your mortgage.
By implementing these strategies, you can potentially save thousands of dollars by avoiding PMI on your mortgage. Be sure to evaluate your financial situation and consult with a mortgage professional to choose the best option for your needs.
