PMI, or Private Mortgage Insurance, allows buyers to put down less than 20% for a down payment. However, if home buyers do take advantage of this they’re required to pay monthly for PMI. As a result, many home buyers aim to avoid paying PMI altogether. There are a few different ways home buyers and owners can dodge PMI payments.
If you’ve served (or are currently serving) in the military, you are eligible for a VA Loan. These loans don’t charge PMI. There is an upfront Funding Fee that VA charges all borrowers (except those who are exempt), but there is no additional amount added to the monthly payment. This is rather remarkable considering VA requires 0% down when buying a home.
Pay 20% of The Down Payment
The most surefire way to avoid paying PMI is also the simplest, namely, paying at least 20% on the down payment of your new home. If you put down 20%, PMI won’t apply and you will avoid the cost of the payments.
A piggyback loan (or combo loan) is when a second mortgage is used to cover part of the initial mortgage’s down payment. Going with this option will also lower the percentage required of the down payment. Instead of 20%, the home buyer will typically only need to put 5-10% down, with the rest coming from the second mortgage.
Lender Paid Mortgage Insurance (LPMI)
Opting for lender paid mortgage insurance in place of PMI will eliminate the cost of a monthly PMI payment. It can also allow home buyers to put as little as 3% down on their new home. Be aware, however, that these benefits come with the cost of a higher interest rate on your mortgage. Instead of paying for PMI, that money will instead be used to cover the higher interest rates. If you plan on staying in the home for a long period of time, you may prefer paying PMI since that may be removed once you hit the 20% equity threshold. If you go with LPMI as an option, the higher interest rate stays for the life of the loan, causing you to pay more in the long run.
Finding the Right Mortgage Program
There are other loan programs that do not require PMI, but often come with higher rates or fees. Discussing such programs with an experienced mortgage professional will help you determine the best path forward.
The ins and outs of mortgages and PMI can be tricky. If you’re trying to navigate your home purchase, we can help! With over 25 years of experience, Butler Mortgage can find the best fit for you in order to put you in your dream home. For a free consultation, call us at 407-931-3800.