PMI, or private mortgage insurance, is insurance that is placed on your conventional mortgage that helps protect the lender’s interests in case you foreclose on the home. The most popular way to pay PMI is as a monthly premium that is added to your mortgage payment each month.
PMI will require you to pay more than you normally would on your mortgage, but there are ways to outsmart PMI before and after you purchase your home.
Put Down 20% Of The Home’s Purchase Price
The best way to avoid PMI right off the bat is to put down 20% of the home’s purchase price. To be able to pay that much, you will have to have been saving for it. In addition to avoiding PMI, making a larger downpayment will give you more bargaining power, and lower monthly payments and interest rates.
Look At Different Homes & Mortgages
The higher the home price, the higher the down payment required to avoid PMI. If you wish you avoid PMI altogether, you should look at different home and mortgage options. Experienced agents such as those here at Merchant of Homes will help you find a home within your budget.
You may also be able to find a different mortgage that accepts lower downpayments like FHA and USDA. Talk to your lender to discuss your options.
If you have paid off a certain percentage of the home’s original appraised value, you can request the cancellation of your PMI. As per the Federal Homeowners Protection Act (HPA), lenders are required to cancel PMI when your loan-to-value ratio is 78% of the original value.
Before requesting cancellation, you must be up to date on your monthly mortgage payments on the anticipated cancellation date.
Refinance Your Mortgage
Getting your mortgage refinanced is another way to outsmart PMI. When you refinance your mortgage, you are renegotiating for lower monthly payments. If your home equity above 20 percent, you might be able to refinance into a new loan without PMI.