How To Avoid Paying Private Mortgage Insurance (PMI)

Depending on the buyer’s situation, figuring out how to secure a mortgage without private mortgage insurance, or PMI, can be difficult. Private mortgage insurance is an additional cost that does not help the home buyer in any way. It’s nothing more than a type of insurance that protects the mortgage lender. While it is difficult, it is possible to obtain a mortgage without having to pay private mortgage insurance premiums.

Piggyback Loan

A piggyback loan is one of the most successful ways to secure a mortgage without private mortgage insurance. This is a form of loan that is given out in addition to the mortgage itself. The loan-to-value ratios that mortgage lenders work with are called loan-to-value ratios. 

When a borrower needs to borrow more than 80% of the home’s value, most lenders require PMI. A piggyback loan is one in which the borrower takes out a separate loan for 20% of the home’s worth and then receives a standard mortgage for the remaining 80%. The lender is not required to impose PMI because only 80% of the loan is borrowed in one loan.

Cash Down Payment

Another option is to put down a cash deposit to avoid paying for private mortgage insurance. The lender is only required to impose PMI if the borrower requires more than 80% of the home’s worth. A borrower will not have to pay private mortgage insurance charges if he can put down at least 20% of the house’s value.

Get Undervalued House

Borrowers may be able to avoid paying PMI by purchasing a home that is on the market for considerably less than its value. When a house is sold as a foreclosure or a short sale, for example, it can sometimes sell for less than 80% of its real market worth. If the appraisal comes back at the correct amount, the borrower can avoid paying private mortgage insurance with this technique.

In this situation, the mortgage would only be for 80% of the house’s worth, and the lender would not borrow more than the loan-to-value ratio allows. These bargains are uncommon, but they can be found if a borrower is ready to shop around for the greatest home price.

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