PMI (Private Mortgage Insurance) Protects the Lender from a Loan Default
Private Mortgage Insurance (PMI) is a type of mortgage insurance required for borrowers who take out a conventional loan and put down less than 20% of the home’s equity. Because borrowers who put down less than 20% are viewed as more of a risk, PMI protects the lender in the case that the borrower defaults on payments. So, how can you avoid paying PMI?
Make a Larger Down Payment
Work hard to save 20% or more to avoid paying PMI altogether. A larger down payment will also reduce your monthly mortgage payment.
Purchase a Lower Priced Home
It may be more financially beneficial to consider lowering your budget. Not only will this help lower the amount needed to reach a 20%, or close to, down payment, but also it will help reduce your monthly payment.
Research Other Types of Loans
Depending on your personal situation, you may qualify for an FHA or VA loan, rather than a conventional loan. Both loan types require less of a down payment.
Consider Lender-Paid Mortgage Insurance
Lender-paid mortgage insurance may allow you to avoid paying PMI, but it may not be worth it. In exchange for the lender paying your PMI, they will charge a higher interest rate. Take into consideration that your interest rate lasts the life of your loan unless you refinance, but PMI does not.
The good news is that PMI doesn’t last for the life of the loan — only until you reach 20%-22% equity. Make sure you’re up to date on your payments because:
When you reach 20% equity in your home, you can request cancellation of PMI from your lender.
When you reach 22% equity in your home, your lender will automatically remove PMI from your loan.
At HomeSource Realty, we’ll help you understand the ins and outs of your loan, the home-buying process, and any other questions you have along the way. We’re here to be a trusted guide for you while we find the best home for you.
Call us today at (828) 252-1023 to get started. We can’t wait to get you into your new home!