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.
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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.
Fannie Mae and Freddie Mac (the two largest government backed servicers in America) mortgage loans require PMI (Private Mortgage Insurance) when the...
