How to Avoid Private Mortgage Insurance (PMI)

Private Mortgage Insurance is a program which allows the party lending you money as a mortgage to ensure that they will not be financially harmed if you default on the mortgage. Normally there is no PMI applied to any transaction which involves a down payment of more than 20% of the value. Here are some steps to avoid having to do it EVEN if you don’t put 20% down.

Steps:

1. Contact your lender to find out the minimum down payment to avoid PMI. Depending upon your credit score, financial history or even the bank rules, they may have a less than 20% rule in place, so you can avoid it simply by asking if you can avoid it. Most banks are firm about this however, since it is another way for them to make a profit. 

2. Speak to the realtor, agent or seller of the Real Property to see if a lower bid will be accepted if you are close enough to a 20% down payment to avoid PMI. This has the advantage of reducing your overall price, and avoiding PMI. 

3. Speak to your realtor, banker or finance representative to find out about an 80-10-10 plan. An 80-10-10 plan involves financing 80% of the purchase with one mortgage, 10% of the purchase with a second mortgage, and only putting 10% down on the purchase. That way, the 20% is still covered, but you only put in 10% as a down payment. 

4. Advise your lender that PMI is a deal breaker and that you are seeking financing elsewhere if you have taken the time to contact other lenders. This may help you shop for a better deal, and give you negotiating leverage with your lender. 

5. Inquire about paying slightly higher interest at the outset of the mortgage to avoid PMI. If you are willing to pay an extra 1% to 2% for the first five years, for example, it is possible in some instances to get the PMI waived. 

6. Follow up with the lender to find out WHEN you can stop paying PMI, because PMI is not permanently required, so there is no need to continue to pay it after it is no longer necessary.