5 Ways to Avoid Paying Private Mortgage Insurance (PMI)

For the unprepared homebuyer, the cost of paying PMI can be a real budget buster, adding thousands of dollars in additional expense each and every year.

What is private mortgage insurance (PMI)?

The purpose of private mortgage insurance is to protect the lender in the event you default on your mortgage.

PMI provides the lender with some protection in the event the homeowner defaults on the loan and the house goes into foreclosure.

How much could PMI cost me each year?

Given how costly PMI can be, it’s no wonder many homebuyers are eager to avoid the expense.

5 ways to save money and avoid paying PMI

Shop around for a loan that doesn’t require PMI

Look for alternative loan programs that either waive the PMI requirement and/or give you down payment assistance

More communities are making affordable housing a priority, and this includes developing new programs aimed at assisting homebuyers.

Check out state and local homebuyer assistance programs

Look for an 80-10-10 loan

These are sometimes called “piggyback loans” and they are structured to help you avoid PMI.

Some lenders offer loans that allow you to avoid paying PMI in exchange for a higher interest rate.

Pay a higher interest rate

A savvier approach for a first-time homebuyer might be to buy a “starter home,” a less expensive one that they can comfortably afford without having to incur PMI.

Buy a less expensive home

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