Avoid the Added Cost of Private
Mortgage Insurance (PMI)
PMI is required by lenders if your down payment on a home is less than 20%. It protects the lender should you lose your home due to missed payments, foreclosure, etc. Generally, you'll pay .25% to 1% of the mortgage loan amount.
Getting Around PMI
To avoid PMI, you can wait until you've saved enough for a 20% down payment. You can also obtain a second mortgage in addition to the original loan, borrowing enough to bring your down payment up to the 20%.
For example, if you have only 10% for the down payment, a lender can give you a first mortgage of 80% of the value, and a second loan for 10% of the value. Keep in mind that the less money you put down on a loan, the higher your interest rate will be, and the rate on a second loan is usually higher than for the first.
PMI is Not Forever
You only have to pay PMI until you have at least 20% equity in your home. In many regions of the country, home values are rising so quickly that it is possible to increase your equity to 20% in just a few years. Also, as you pay down your loan, you increase your equity. You can prove to your lender that you have 20% equity by getting an appraisal on your home. Although you'll have to pay an appraisal fee, eliminating PMI could save you thousands of dollars in the long term.
