When financing more than 80% of the value of the home you are purchasing or refinancing, there are several ways to avoid having to pay for costly private mortgage insurance.Another option becoming popular with lenders is to offer some form of lender paid MI. The most common way this is accomplished is through an adjustment to the interest rate. By increasing the interest rate the lender is covered for the additional risk, and the borrower has a tax advantage compared to traditional PMI.
One way to not get rid of PMI nor avoid it, is to finance your mortgage on a lower term than a 30 year mortgage. Lowering your mortgage term to a 20 year mortgage, or even better yet a 15 year mortgage, will reduce your PMI amount drastically. Not only will it reduce your PMI amount by a lot but it will help you to build equity in your home much quicker and pay your house off many years sooner. This is a very wise option if you can comfortably afford to do it.
Some savvy buyers will negotiate Private Mortgage Insurance to be paid by the seller as a condition of the purchase.
Be sure to ask your Realtor or Mortgage Broker for more advice on seller concessions and single premium Private Mortgage Insurance.
If you have any cash to put down on the purchase, you can limit or even eliminate the need for mortgage insurance (MI) altogether. If you take out a mortgage for no more than 80% of the purchase price or appraised value you will not need MI. If you are putting down 5, 10 or 15% down you will be looking at reduced mortgage insurance rates compared to someone taking out 100% financing.
One of the easiest, and often cheapest ways to avoid paying PMI is to do a simultaneous closing, where the borrower finances 80% of the purchase price with one loan, then finances the other 20% with a 2nd mortgage. Often times, the payments on the two mortgages end up less than if the borrower had just one loan with PMI. Plus, the interest on the 2nd could be tax-decuctible.
