Private mortgage insurance (PMI) is required for home loans where the buyers want to put less than 20% down toward the purchase price of the home. The costs of the insurance are paid for completely by the new homeowners. In some cases, this could mean paying two separate payments – one for the mortgage and another for the insurance premium. The average cost for PMI is around $200 a month for a home with a sales price around $230,000.
Besides the added cost of PMI, here are other reasons to try to avoid this insurance:
- PMI is not life insurance and only protects the lender should you default on the loan.
- PMI tax deductions have caps that you could exceed, so you lose the tax benefit.
- Payments can be required for a specific period of time.
- PMI can be difficult to cancel, depending upon the loan type.
How to Avoid Paying PMI
The most obvious way to avoid paying PMI is to put down a 20% down payment when purchasing the home. Another tactic is to use what is called a “piggyback loan.” This is where you finance 80% of the purchase price in one loan, finance 10% in a second mortgage, and put down 10%. Some lenders refer to these loans as 80/10/10. For more information about PMI and how you can avoid it, please feel free to contact Elite Financial at 805-494-9930 today!