Key Takeaways:· Preparation is key when applying for a mortgage· Be ready to provide documentation about your employment, income, debts, and assets.· Your credit score will
How To Avoid Paying PMI: Tips For Homebuyers
Dated: September 7 2022
- Private mortgage insurance is an extra cost you should avoid paying if possible.
- You can avoid paying PMI by taking out a higher interest rate loan, making a larger down payment, or making extra mortgage payments.
- You can shop for a lender with lower or no PMI rates or ask your lender to cancel PMI when you reach 20% equity in your home.
- You can also refinance your home once you have 20% equity to get a loan that doesn't require PMI.
- Ask your real estate agent about options for avoiding PMI when buying a home.
- Dynamic Properties offers realty services to customers in Evergreen, CO, and the surrounding areas.
Private mortgage insurance, or PMI, is an extra cost that homebuyers often have to pay if they cannot put a 20% down payment on a house. While it may be unavoidable in typical situations, there are ways for homebuyers to avoid paying PMI if they are willing to do some research and planning.
will discuss the potential solutions for homebuyers who want to purchase a property without worrying about PMI!
Private Mortgage Insurance
Private mortgage insurance is a policy to save lenders if a borrower defaults on their home loan. Lenders often require PMI if the borrower puts down less than 20% of the purchase price as a down payment. The monthly premium for PMI varies depending on factors such as credit score, loan type, and LTV ratio, but it typically ranges from 0.25% to over 0.50% of the loan amount annually.
Tips to Avoid Paying PMI
There are many ways to avoid paying private mortgage insurance; the best method will depend on your circumstances.
1. Increase Your Down Payment
One way to avoid PMI is to make a larger down payment on your house. If you can pay at least 20%, you can usually avoid paying PMI. If you cannot do so, talk to your lender about other options for avoiding PMI, such as Lender Paid Mortgage Insurance (LPMI) which could help lower your monthly payments. LPMI is where the lender pays for the PMI in exchange for a higher interest rate on the loan.
2. Choose a Loan That Doesn’t Require PMI
Another way to avoid PMI is to choose a loan that doesn't require it. Some lenders offer loans that don't require PMI if you meet specific criteria, such as having a good credit score or taking out a 15-year mortgage instead of a 30-year mortgage.
3. Find a Lender with Lower PMI Rates
If you're already in the buying process and can't avoid paying PMI, there are still things you can do to minimize the cost. You can shop around for a lender with lower PMI rates.
So if you're looking to buy a home, ask a reliable real estate agent about options for avoiding PMI. With some planning and research, you can save yourself a lot of money down the road.
4. Cancel PMI After Building Some Equity
Another possibility is to wait until you have more equity in your home before refinancing. You can build equity by making extra payments on your mortgage or by waiting for your home's value to increase. You can request your lender to cancel PMI when you reach 20% equity in your home (most lenders will do this automatically).
5. Refinance Your Loan
Another way is to refinance your home loan. If you've made timely payments and your home has increased in value, you may be able to get a new loan that doesn't require PMI. You can also refinance your home once you have 20% equity to get a loan that doesn't require PMI.
6. Negotiate with Your Lender
If you're not ready to refinance or don't think you'll qualify, there are still things you can do to avoid paying PMI. Negotiate with your lender for a no-PMI loan. This type of loan typically comes with a higher interest rate, but it could save you money in the long run.
Making additional payments on your mortgage is one of the best ways to save money and build equity in your home. Avoiding PMI can keep more of your hard-earned money in your pocket.
7. Look for a Piggy Bank Loan
A piggyback loan is when you take two loans at once to avoid paying PMI. It is classified as an 80-10-10 loan or an 80-15-05 loan.
With this type of loan, you put down a ten percent down payment, get an 80 percent first mortgage, and take out a second mortgage for the remaining ten percent. This structure prevents you from paying PMI because the second mortgage “wraps around” the first one.
With this loan type, you break the home's value as 80 percent for a first mortgage, 15 percent for a second mortgage, and the remaining five percent for the down payment.
8. Work with a Reliable Real Estate Agent
Paying PMI is an avoidable cost that can eat into your monthly budget. A reliable real estate agent can help you avoid paying PMI altogether or minimize its impact. Don't let PMI sneak up on you and leave you feeling unprepared. Be proactive and ensure you get the best possible home loan deal. Also, read our blog on how a reliable real estate agent is your best bet to make property-buying or selling decisions.
If you're unsure whether or not you're paying PMI, talk to your lender about it. They can give you an estimate of how much it will add to your monthly payments. You may also be able to find this information in your loan documents. Once you know how much PMI costs, explore ways to reduce or eliminate it.
Need Reliable Realty Services in Evergreen, CO? No Problem!
Dynamic Properties serving Evergreen, CO, has been in the real estate industry for over 38 years and our team lead specializes in legal contract law. We always take the time to present pertinent information and discuss all potential options with you so that a solution that satisfies all parties involved can be reached. If you want to buy a home with low or no PMI financing, please don't hesitate to contact us.
Driven to Be Her Best. Personal mission statement to serve the needs of her clients and make a difference in their lives. Sharon started in real estate with a very simple philosophy: 1) Know your mar....
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