How to Avoid Paying Private Mortgage Insurance

When I first got my home loan, private mortgage insurance accounted for $60 of my $730 monthly payment. Like many first time homeowners, I didn't even realize I would be paying that much extra each month until I got my first mortgage statement. It irked me to write the check each month knowing that $60 was being wasted. I got rid of my PMI as soon as I could, and vowed never to acquire a mortgage with PMI again. Here's how to avoid paying private mortgage insurance.

Instructions

Difficulty: Moderate

1. Pay a down payment of 20 percent of your home's value. If you have at least this much as a down payment (and it may very well be worth saving for your down payment for a few extra years in order to have enough) you will avoid paying private mortgage insurance (PMI) on your home loan.
2. Get a first mortgage that is only 80% of your home's value. Make up the difference with whatever down payment you have combined with a second loan for the remainder. That way, you will avoid paying private mortgage insurance on the loans.
3. Pay extra toward your mortgage each month to pay down your principal more quickly so that you can have your PMI removed sooner, if you are already in a loan with private mortgage insurance. Once your mortgage crosses the 80% of appraised value line, contact your bank to go through the process to have PMI removed.
4. Negotiate with your potential lender to avoid paying private mortgage insurance even if your loan is for more than 80% of the house's value. If the bank needs your business, and you have a good credit score, you may get a waiver. Deal locally or with manual underwriting if possible.
5. Refinance your home with a lender who does not require private mortgage insurance. Do the calculations, including any interest rate changes and closing costs, to make sure this is a profitable decision. If you only plan to stay in the house for a couple years, it probably won't be worth it.