There are many ways to avoid paying PMI, also known as Private Mortgage Insurance. One way to avoid paying PMI is to make a down payment of 20 percent or more on your home that you are purchasing. Whenever you place 20% or more down you can avoid paying this costly private mortgage insurance. Another way to avoid paying PMI when you are buying a home is to obtain a first and a second mortgage to get around the 20% down payment requirement. You can do what is known as an 80/20 mortgage which is where you obtain a first mortgage for 80 percent of the purchase price and a second mortgage which is 20 percent of the purchase price. You can also do an 80/15/5. This is where you put 5% down and obtain an 80% first and a 15% second mortgage. Then there is also an 80/10/10. 10 percent down, 10 percent 2nd mortgage and 80 percent 1st mortgage. Another option to avoid PMI is to obtain LPMI. This is lender paid mortgage insurance and you will usually accept a higher interest rate instead of paying PMI. The amount of the increase in the interest rate will depend upon the LTV, Loan to Value, of the loan. One final way to avoid paying monthly mortgage insurance is to pay for the mortgage insurance upfront. This will usually provide you with a lower amount of mortgage insurance and reduce your monthly mortgage payment. One final way to avoid paying private mortgage insurance is by obtaining a subprime loan. Most subprime lenders, lenders who usually lend to borrowers with less than perfect credit or borrowers searching for creative financing of some sort, charge a higher interest rate than conforming lenders and because of this they do not normally charge mortgage insurance.
You can avoid paying PMI when you are refinancing through use of the same concepts as above or by paying your mortgage down below the 80% loan to value. You can also contact your lender and have an appraisal done after your home appreciates enough to gain 20% equity in your home and request that your PMI be dropped. Your lender may have a few other requirements that you will need to obtain in order to drop the PMI. Please give me a call at 888-418-4467 or email me at dave@gofirstsecurity.com if you have any questions in regards to avoiding paying PMI.
What is PMI - What is PMI and why do I have to pay it? These are questions that has been around for a long time and very common for any homeowner to ask. PMI is also know as Private Mortgage Insurance. PMI is charged on conforming loans when a buyer does not put down a 20 percent down payment or greater. PMI insures the lender in case you default on your loan. So basically you are paying for insurance for the bank with this type of insurance.
PMI is required on Conforming and Jumbo Loans when the Loan-to-Value (LTV) is greater than 80%. The PMI premium can be paid upfront or monthly. The premium generally ranges from .25% to .90 of the loan amount depending on the LTV. PMI is not a deductible tax expense. PMI is commonly avoided by utilization of a 2nd mortgage(piggyback)in combination with the 1st mortgage so that the LTV will be 80% or less. The difference needed is then obtained through the 2nd mortgage ie: 80/10/10 or 80/15/5.
Some banks and lenders offer loans with no PMI. Don't be mislead as the premium is already built-into the quoted rate. The advantage is that you do not need to obtain PMI approval and becasue the pmi is added as an increase in the interest rate it is deductible. The disadvantage is that unlike traditional PMI it can not be dropped unless the borrower refinances.
One way to avoid PMI is to take out two mortgages. If your first mortage is less than or equal to 80% of the purchase price, you are not required to pay mortgage insurance. Since you are not required to pay mortgage insurance on a second mortgage you can add a second mortgage for 20 percent of the purchase price for a total of 100 % financing without paying mortgage insurance.
Private Mortgage Insurance (PMI) - Private mortgage insurance is a type of insurance that helps protect the mortgage company against losses due to foreclosure. This protection is provided by private mortgage insurance companies and allows mortgage companies to accept lower down payments than would normally be allowed.
You will usually pay mortgage insurance on a loan that is 80% or more of the value of the home. For this reason, it is common for borrowers to split their loan into two separate loans - one for 80%, and one for the rest of the loan. This prevents the need for mortgage insurance, although you will be paying a higher interest rate on your second mortgage, which will still cost you more.
Don't confuse mortgage insurance with hazard or home owner's insurance. Mortgage insurance does not benefit the consumer in any way. It is simply a policy to help insure the lender against the borrower defaulting on their loan.
Your PMI payment is not tax deductible so it is in your best interest to avoid it and use a program such as the 80/20 loans available. The interest on these combo loans is 100% tax deductible.
Since the PMI payment is not tax deductible, talk to your mortgage broker about spliting your mortgage into two different liens to avoid payment PMI.
When you are required to pay PMI ask your mortgage professional what options are available for payment of the PMI, if any. When you choose to pay the PMI in one lump sump at the beginning of the loan many times you can save some money by choosing this option as opposed to paying it monthly through your mortgage payment. Also, by lowering your term from 30 years to 25 or 20 years this will generally reduce your PMI amounts also. The lower the term of your mortgage generally the less you will pay for PMI.
When the balance on your mortgage falls below 80% of your home's value, you may be able to have the mortgage insurance dropped. Discuss the alternative ways to do this with your mortgage professional
You can also ask your mortgage professional if they have programs that allow the lender to pay the private mortgage insurance premiums for you in exchange for a slight increase to your interest rate.
If you elect to do a lump sum payment of PMI at the beginning of the loan, you can often finance it as part of your mortgage and end up paying less per month than if you paid a monthly premium.
There are several options available for paying PMI. The traditional form of PMI is paid monthly by the borrower. There is also an option to increase the interest rate to cover the payments. This is called Tax Advantage MI. The increased rate has about the same payments but since it is included in the mortgage interest rate a portion of the payment is tax deductible. There is also the option to make a one time initial payment for the PMI, and in some scenarios this payment can be included in the loan amount.
