PMI (Private Mortgage Insurance) is an additional monthly fee you have to pay if your down payment is less than 20% on a new mortgage. Mortgage companies claim that it’s a form of protection for them, in case you default on your home loan. This is required by all banks if you have less than 20% equity in your property. Most buyers typically put 5% or less down, so PMI is very common. How can you avoid PMI? The following are ways on how to avoid private mortgage insurance.
- The easiest way is to put 20% down or to buy a property well below market value. Try to gather enough funds to make your down payment greater than 20%.
- Find a different property that is less expensive that way you can get your down payment to or above 20 percent.
- The most common option is a second loan to make up the short fall. If you have 5% you can get a second mortgage of 15% to eliminate the PMI. Be careful here because a lot of people end up paying more interest for their second mortgage than they would if they simply paid the PMI. Do your research.
- If you couldn’t avoid PMI in the first place. Remember that once you establish a 20% equity position in your home, it can be reappraised and the PMI can be eliminated.
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