How to Avoid Paying Private Mortgage Insurance

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By WriterGig
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Avoid Paying PMI

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.

Difficulty: Moderate

Instructions

Step 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.
Step 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.
Step 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.
Step 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.
Step 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.