When purchasing a home, you want to make sure that the money you put into the home is adding to your equity, so that you aren’t throwing money into a home that you can’t get back. For this reason, trying to avoid paying private mortgage insurance (PMI) is a major goal of many aspiring homeowners, since the payments towards PMI don’t add to your equity. However, if you aren’t looking to get an USDA or FHA loan, then there are ways that you can get around having to pay for private mortgage insurance…
Offer a down payment of 20% or more
The easiest and simplest way to get around paying for PMI is to put a down payment of 20% or more down on the home. Private mortgage insurance exists because lenders want to make sure that they aren’t putting themselves in financial danger with risky loans. That means they can use this type of insurance to cover their backs, if the lender ends up defaulting on the loan. For this reason, most loans require you to have a 20% down payment, in order to avoid paying PMI.
See if you qualify for a VA loan
If you currently or have ever served in the United States military, then there is a strong chance that you qualify for a VA loan. VA loans are a way to help veterans and current armed forces service people secure loans under more favorable terms. One of these terms that they can take advantage of is that PMI requirements are waived under VA loans.
Use a piggyback loan
This isn’t necessarily a way that we recommend to most people, but there are situations where it might be smart to use a piggyback loan to avoid paying for PMI. The way this works is that you put down a down payment that is less than 20%, such as 10%, and then you take out a piggyback loan to put down the full 20%. This means that you will be paying off two different loans at the same time, but it can be useful if the homeowner can definitely afford the home, doesn’t have time to save for the down payment, and wants to pay more each month to pay off the home, quicker.