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Can You Outsmart PMI On Your Mortgage?
Private mortgage insurance (PMI) can be an expensive requirement for your home loan, as it adds more to your monthly payment costs. This is a safeguard that your lender will take out to cover a portion of the amount you borrowed in case you default.
Here are several tips to avoid PMI when getting a mortgage for your home:
Put Down A 20% Down Payment
Another way to avoid paying PMI is to put down a 20% down payment on the home. A 20% down payment is considered standard in the industry but it is not uncommon for home buyers to put less than 20% down.
Remember, the higher the price of the home, the higher down payment will be. If you find yourself hard-pressed to afford a 20% down payment, you can wait a little longer to purchase a home and save up, find a less expensive home, or get down payment assistance.
You can request cancellation of your PMI if you have paid down a certain percentage of the home’s original appraised value. This number is around 80%. When you reach this point, your lender should automatically drop the PMI.
Remember, for your lender to cancel PMI you must be up to date on your payments on the anticipated termination date.
Look At Different Mortgages & Homes
Not all mortgages are created equal and what works for one homebuyer may not work for another. Researching your different mortgage options before you settle on a choice will allow you to understand how much you will be paying per month and how PMI will affect you.
Get Your Mortgage Refinanced
You can reverse PMI by getting your mortgage refinanced. This will also help you reduce your monthly payments, helping you save over time. You can refinance your mortgage at any time but be sure you know why you want to refinance—if your home has not built up enough equity, you may want to hold off.
Your lender will be able to help you determine the best way of eventually eliminating PMI or avoiding it altogether when you purchase your home.