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You are paying for private mortgage insurance if your monthly mortgage statement has a line marked "PMI." However, what is its true purpose?
Who bears the cost and who is spared? Above all, how can you prevent it from happening again? Here we will teach you how to save a minimum of $50 to $250 a month.
The FHA mortgage was created especially for those who were first-time homebuyers with low incomes and bad credit.
Avoid FHA Loans
Contrary to "conventional" belief, borrowers with credit scores as low as 580 are eligible for as little as 3.5% down payment.
If lenders ask for PMI when you contribute less than 20% of the buying price, pay the necessary 20% down payment to avoid it.
Put Down 20%
An 80/10/10 piggyback mortgage scheme is still available from some lenders, however it is less widespread than it formerly was.
Consider a Piggyback Mortgage
It entails taking out two mortgages: a 10% down payment, an additional 10% from a second mortgage (also known as a HELOC), and 80% of the purchase price from the first mortgage. With the 80% mortgage, PMI is avoided.
Some borrowers choose to pay off their mortgage loan as soon as possible to get it down to less than 80% LTV, even though they put down less than 20% and accept the PMI charges.
Pay Down Your Loan Balance Quickly
According to the federal Homeowners Protection Act, the lender is required to automatically remove PMI whenever your loan total surpasses 78% of the original purchase price or appraised value.