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3 Ways to Avoid Private Mortgage Insurance Requirements

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TERMINOLOGY

Private mortgage insurance is something that adds cost to your monthly mortgage payment. If you want to avoid paying private mortgage insurance, there are a number of things that you could potentially do. Here are some ways to avoid private mortgage insurance requirements.

1. Down Payment

One of the best ways that you can avoid paying private mortgage insurance is to come up with a substantial down payment. In order to avoid private mortgage insurance, you are going to have to come up with 20 percent of the value of the property. The bank is willing to lend you 80 percent of the money that you need without having to insure the loan. While it can be difficult to save enough money for a 20 percent down payment, it will allow you to save some significant money on your mortgage payment over the years.

2. Second Mortgage

Another way that you can avoid paying private mortgage insurance is by getting a second mortgage. The first mortgage that you get is going to cover the 80 percent of the purchase price of the property. Then you will get a smaller second mortgage to cover the 20 percent that is remaining. You will be working with two different lenders, and you will have to make two different mortgage payments with this method. Therefore, it can be a little bit inconvenient and confusing. However, you will be able to save by not having to pay private mortgage insurance every month. If you can handle writing two checks and keeping up with the due dates on each loan, you will be able to benefit from this method. When you are shopping for your second mortgage, you want to make sure that you pay attention to the interest rate. Most of the time, the interest rate is going to be higher with a second mortgage than it is for the first.

3. Find a Deal

If you can find a good enough deal on a piece of property, you can also avoid paying private mortgage insurance. The loan-to-value ratio is calculated on the actual value of the house and not necessarily the purchase price. This means that if someone is selling a house for a deep discount, you could potentially purchase it and not have to worry about private mortgage insurance. For example, let's say that there is a house that is worth \$100,000. The owner of the house needs to move quickly and is willing to sell it for \$80,000. This means that you should be able to get a primary mortgage for the entire purchase price. The lender knows that they could sell the house for approximately \$100,000 if you default on the loan. Because of this, they will not be worried about you coming up with a \$20,000 down payment or making you pay private mortgage insurance every month. Deals like this might be hard to find, but they are definitely out there if you are willing to look for them.