No one wants to pay private mortgage insurance. It's expensive, cumbersome, and can really get in the way of having you achieve your financial goals. However, sometimes it's necessary depending on your financial situation. If you want to avoid paying PMI, though, there are some ways in which this can be easily accomplished. It used to be that you paid PMI if you put down less than 20% of a loan; this is no longer the case in all circumstances. Here's how to avoid paying PMI:
Make a Down Payment of Twenty Percent or More.
The easiest way to avoid paying PMI completely is to put forth a down payment of twenty percent or more. If you don't have twenty percent saved up, you might want to consider looking at cheaper homes or waiting until you have the financial reserves to pay down the full twenty percent.
Apply for a VA Loan.
If you're eligible to take out a VA loan, you won't have to pay PMI at all throughout the course of the loan. You can put forth a down payment as low as 3.5%, and you still won't have to pay PMI, regardless of your LTV.
Utilize Lender-Paid Mortgage Insurance.
With this option, you will have an increase in your rate so that your lender can pay the private mortgage insurance on your behalf. The one caveat we have about this option is that you can never cancel lender-paid mortgage insurance, so you'll need to strongly consider whether or not this option is suited to you.
Use Piggyback Financing.
With piggyback financing, you will put forth a down payment of at least 10% and take out two mortgages instead of one to pay the remaining 90% you owe on the home. The most common way to do a piggyback mortgage is an 80/10/10 loan.
Buy Out Your PMI.
If you don't want to pay PMI, but you don't have a 20% down payment, you might want to consider buying out your PMI in exchange for a higher interest rate. The rate bump might be half a percentage point, so this option is usually a lot more financially stable than paying PMI for the lifetime of the loan.
Because credit unions have a non-profit status, you may want to consider taking out a mortgage with them as many will waive the PMI requirement, even if you have less than 20%.