How to Avoid PMI

PMI might be part of your mortgage payment.

Private Mortgage Insurance is practically a way of life for first-time home buyers. PMI is added to the cost of the home to insure the lenders that you will repay the loan and not go into foreclosure. If you do not have 20 percent down of the home price, you will probably have to pay PMI.

Instructions

1. Learn what PMI is and be prepared as you shop for a loan. Also, know what you can afford in a home. Be realistic. Everyone should not buy a home the instant they get a job. A couple should have a handle on their finances, know how much debt they have and what they can afford in the price of a house. Calculators tell first-time home buyers how much they can afford. A rule of thumb is your payment should not be more than 25 percent of your take home pay.

2. Investigate borrowing your down payment from family or friends. Be very careful about borrowing from family. Always put terms in writing and have a good understanding about the repayment policy. Possibly you can borrow from your 401(k), life insurance or other sources. Check out whether the pros outweigh the cons. Usually, any other kind of interest will be less that PMI insurance.

3. Take out two loans for your house. The first mortgage could be for 80 percent and the second mortgage could be for 20 percent. This is a possibility, but investigate all angles.

4. Find an online PMI calculator and figure out how much the PMI will be. Bankrate.com and Quickenloans.com are two reputable places to find such calculators.

5. Never be afraid to ask for a lower PMI rate. Most people never ask for a lower rate and they pay for that mistake every month.

Tips & Warnings

• Sometimes making a payment every two weeks, instead of once a month helps build equity.

• Make home improvements to your home. This usually makes the value go up.

References

• Forbes: Six Reasons To Avoid Private Mortgage Insurance