How to Avoid Private Mortgage Insurance

Private mortgage insurance, also referred to as PMI, can add hundreds of dollars to your monthly mortgage payment. However, there are a few ways you can avoid paying PMI.

Difficulty: Easy

Instructions

1. Learn what private mortgage insurance is. PMI is basically an insurance policy that is taken out to protect the bank from defaults on the mortgage.

2. Learn about the traditional way to avoid paying PMI. The usual way that borrowers avoid paying PMI is to put down at least 20% of the home's value as a down payment when taking out a mortgage.

3. Learn about 80/20 loans. Another way that you can avoid paying private mortgage insurance is to use an 80/20 combo loan. In this scenario you take out two loans. Your first mortgage will be worth 80% of your home's value, and your second mortgage will be worth 20% of your home's value. Because your first mortgage meets the 80% rule for PMI, you won't have to pay for private mortgage insurance.

4. Learn about other ways to avoid PMI. In some cases you can get the lender to pay the PMI. To qualify for lender paid PMI you usually will need a superior credit rating and excellent qualifications.

Tips & Warnings

• Weigh the pros and cons of each loan scenario before making a decision.
• Talk to a mortgage broker to find the best mortgage programs that don't require PMI.
• Shop around for the best interest rates.
• Using the 80/20 combo loan you probably will have to pay higher interest rates than in a traditional mortgage.
• Not all loan products are for everyone.
• Not everyone will qualify for an 80/20 combo, 100% financing plus lender paid PMI, or traditional mortgage.