How to Avoid PMI

The words insurance, finance, foreclosure, mortgage all are enough to create a nightmare for me. These words really scare me to the hilt. All the same, these fiscal matters are a harsh reality of the world we live in. So the other day I was going through this finance section of the newspaper and was trying to decipher what seemed like Greek and Latin to me. I just scanned through a section about Private Mortgage Insurance or what is also termed as Lenders Mortgage Insurance and how to avoid it. I thought I will try my hand at explaining how to avoid PMI, to those like me are far from finance!

Avoiding PMI

To begin with, allow me to explain a little bit about what is PMI Insurance. In the US, it is a type of insurance which is payable to a mortgage lender or a trustee. That amount is for a pool of securities which might be needed in case a person takes a mortgage loan. It is mainly to offset and compensate for losses if at all a mortgagor cannot repay the loan and most importantly the lender is unable to recover the costs post foreclosure and mortgaged property being sold. So how do you avoid this PMI? Take a look.

Back Yourself with a Piggyback
Amongst several ways to avoid PMI, this is one of the most common ways, to opt for a piggyback loan. In this what you can do is use 2 loans to finance your property. For this an individual would have to speak to his or her mortgage lender and request a first mortgage for 80% of the loan balance. Then request for the second mortgage for the remaining percentage once your down payment is done. An individual would require a second mortgage for 15% of the mortgage balance, if he is paying a 5% down payment. Find out more on this in what is mortgage insurance.

Housing Policy
To avoid PMI, this is another option. Let me tell you how to avoid PMI on FHA loan. If you are lucky, the government will insure the mortgage loan for you. That will help you avoid and get out of that whole PMI issue. Or if not that, you would be required to pay an amount less than what you would have had to otherwise. These programs are great in case an individual has a moderate income.

A 20% Matter
Think of starting your loan with more equity, if you can spare that much money. If you do not even have enough even for putting down 20%, then ponder over the thought of buying a cheaper home. Tap all the sources you can for the down payment.

Local and State
In connection with avoiding PMI, you can also check out first time homeowner programs, helping borrowers to find lower interest loans, put up by various communities. If nothing, you can get at least a loan for the down payment.

In addition to these, to eliminate the possibility of a PMI, what can be done is perhaps a Veterans Administration mortgage can be applied for. Here the lender has to collect an upfront, one time fee at the closing. This is called the funding fee. This amount ranges from 50% to 3.00% of the loan amount. Of course that will depend upon the status of the veteran and whether that person has used the VA benefits earlier for buying a house.

In addition to this, there a number of reasons as to why to avoid PMI. The most important one being saving money. You can also avoid PMI when refinancing by looking up the exact procedure on the Internet or speaking to a finance expert! This is where I sign off!