Can You Avoid Mortgage Insurance?
The main way to avoid mortgage PMI payments is to make a down payment that equals 20%, or one-fifth, of the purchase price of the home. For example, if the home costs $180,000 then you would need to pay at least $36,000 to avoid paying PMI. While it’s the easiest way to avoid mortgage insurance, a down payment of this size may not be a feasible option.
Another option to avoid paying this is for qualified borrowers to get a piggyback mortgage. A home equity loan or second mortgage is taken out at the same time as the first mortgage. This means that 80% of the purchase price is then covered by the first mortgage, 10% is covered by the second loan, and then the final 10% is covered by the down payment. This will eliminate the need for PMI. With a home valued at $180,000, the first mortgage would be $144,000, the second mortgage would be about $18,000, and your down payment would be $18,000. This may be a more feasible option when saving.
A final option is the option of lender paid mortgage insurance where the cost of PMI is included in your interest rate for the life of the loan. While you are technically avoiding PMI payments, this means you are paying more in interest over the life of the loan.