Home Buying
When buying a home, it is wise to avoid paying PMI. What is this dastardly thing called PMI, and how can you avoid it?
When buying a home, it is wise to avoid paying PMI. What is this dastardly thing called PMI, and how can you avoid it?
Private mortgage insurance, also known as PMI, is a type of mortgage insurance used with conventional loans. Just like most types of insurance, PMI only protects the lender against loss if the borrower defaults. Borrowers pay their PMI monthly until they have accumulated enough equity in the home that the lender no longer considers them high risk. Keep track of your payments on the mortgage’s principal. When you reach 20% equity, you can notify the lender in writing that it is time to discontinue the PMI premiums. The lender should comply as long as your home’s value hasn’t dropped, you have a history of on-time payments and you don’t have a second mortgage.
To avoid paying PMI you need to sit down and get your finances under control. Calculate how long it will take you to save 20% of your desired home loan. Set a time frame, a budget, and start saving for the that house.
Another way for Veterans to avoid paying PMI is to get a VA home loan. By doing this, the VA guarantees the lender that the payments will be made voiding the need for the PMI.
That was a WONDERFUL answer, Chris. Well said! Let’s review. You will pay PMI in most cases (VA loans being one of the few exceptions) if you fail to come up with the 20% downpayment.
If you are currently paying it, focus your efforts on paying the loan down faster so you can reach 20% and then contact the lender to drop the cost.
If you are considering buying a home, wait if needed, until you have saved the 20% downpayment to avoid paying PMI. Patience is your friend on this issue AND knowledge of course.