Typically, if you buy a house with a down payment of less than 20 percent of the home’s value, or refinance with less than 20 percent equity, the lender will require you to purchase private mortgage insurance, or PMI, which protects the lender in the event you fail to make your mortgage payments.
Paying private mortgage insurance is something most people try to avoid. Luckily, there are more strategies than just putting more than 20 percent down on the home, which most people cannot afford. With a little creativity, you can find ways to avoid this insurance which can add a significant amount of money to your mortgage payments each month.
You can avoid private mortgage insurance when you refinance if you borrow 80 percent or less of your home’s value. Lenders typically require it if you don’t put at least 20 percent down on a conventional mortgage. The Federal Housing Administration requires similar government insurance on FHA loans with a low down payments.
You can get a mortgage for a smaller down payment, but your lender might require you take out a private mortgage insurance.
What is it? Is it a bad thing? How do you avoid it? A: Borrowers who put down less than 20 percent of a home’s purchase price are required by lenders to take out private mortgage insurance. PMI does.
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Conclusion. Mortgage Insurance can be very expensive hence, the need to avoid or get rid of it. It is important to understand the terms of your mortgage contract and be familiar with how to get rid of PMI to avoid paying it longer than necessary.
Home buyers often avoid PMI because they feel it’s an "unnecessary" or "extra" cost that benefits the lender. But the same argument could be made for mortgage interest. Any time a mortgage lender – or any lender – makes a loan, they charge interest. The profit from this arrangement keeps the lender in business.
· Private mortgage insurance is likely to be required on mortgages with an LTV ratio greater than 80%. Avoiding PMI can cut down on your monthly payments and.
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Private mortgage insurance is likely to be required on mortgages with an LTV ratio greater than 80%. Avoiding PMI can cut down on your monthly payments and make your home more affordable.