Tips to Avoid Mortgage Insurance
By Susan M. Keenan
Photo: © Norman Pogson - Dreamstime
First time homeowners looking to keep their monthly costs down should try to avoid private mortgage insurance (PMI) when buying a home. After all, this added cost could defeat the purpose of shopping around for the lowest interest rate for mortgages, the lowest APR, and the fewest chargeable points. Don’t spend money on something you don’t need or want.
Avoiding Private Mortgage
Insurance is Possible
You can easily avoid private mortgage insurance if you put down 20% of the purchase price of the home. If you don’t have the available cash to do so, you should look into getting a small secondary loan. Talk to your lender about arranging your finances to include a primary mortgage of 80% of the purchase price and a secondary loan to increase your down payment so that it reaches the necessary 20%.
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Before the lending environment tightened it was easy to obtain a small secondary loan at a minimal monthly cost. In today’s market, a secondary loan is still an option. It is more difficult to qualify and the interest rates are higher. If you can obtain a small secondary loan at a reasonable interest rate, the added monthly cost of the secondary loan may be less than the cost of private mortgage insurance. Ask your lender about your options. Your goal is to avoid the added cost of private mortgage insurance, and have more disposable cash each month.
A Larger Down Payment Means More
Money in Your Pocket
If the thought of obtaining a second mortgage is a bit frightening, the alternative to avoiding private mortgage insurance is to save up a larger down payment. It will be difficult, especially if you are already cutting corners. But, if you put off making unnecessary purchases, cut back on entertainment costs, and trim your grocery bill, you should be able to accumulate enough money to help you meet your goal of 20% of the purchase price.
Save More with Lower Homeowner's
Insurance Premiums
Even if you avoid private mortgage insurance, the monthly expenses of owning a home add up quickly. Trim your cost by shopping around for the best rate on a homeowner’s insurance policy. Keep in mind that there are often discounts for bundling insurance policies such as car and life insurance, safety devices, and security systems.
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