There is a lot that goes into buying a home for the first. Most new buyers will have a sense of anxiety and fear as they begin the process of looking for a home, applying for a mortgage, and going through the waiting process. Once the buyer gets to closing, they will receive a packet of information regarding the home and financial summary of their loan. Depending on the type of loan and conditions that were used to buy the home the buyer may have to pay private mortgage insurance. PMI, as it is called, is an insurance product required in some cases on behalf of the lender that protects them should the borrower default on their loan. As a buyer it is important to know how to avoid PMI
Settle for the Low-Down Payment Loan
Most lenders will require some kind of down payment before approving any kind of home loan. As a buyer you have options as to which loan is right for you. Conventional home loans typically require a 20 percent down payment when it comes time to sign the loan papers. Anything short of 20 percent and you can expect to be required to purchase PMI. As a borrower look for a VA loan, USDA loan, or an FHA loan. All of which has a significantly lower down payment requirement. The down payment is easier to produce and most of the time PMI is not required.
Have PMI Canceled
As you payoff your loan you will find that your equity begins to build. You will also notice that your balance due will drop under that 20 percent threshold. Once it drops below that percentage you can request a cancelation of the PMI policy. This will lower your monthly payment saving you even more money.
Refinance Your Current Loan
If you have been with the same lender for several years, it might be time to refinance with another lender. Lenders are always looking for new borrowers, so they will often have specials that may not require refinancing fees or even discounted interest rates. You may find that by refinancing your loan you can avoid PMI completely without having to request a cancelation of the policy.