How To Avoid Paying PMI (Private Mortgage Insurance) on Your Mortgage?

What is Mortgage Insurance?

-Mortgage insurance gets a really bad name when it comes to payments and real estate professionals and clients, but essentially it has a very long history in lending and with the government. It started out after the Great Depression as a way to encourage banks to continue to loan out money because they were hardest hit when people default right with such bad economic times. Mortgage insurance was created to encourage them to start loaning out again.

FHA

-If you’re paying FHA, you’re going to have it for the whole 30-year loan. Is there a way to pay it sooner or get rid of it? The answer is there is no way to pay it down to remove it on FHA, so basically the minimum down is 3.5% and if you were to do this you would finance in an upfront mortgage insurance premium. This could actually also be paid upfront too if you wanted to but most people will finance it into their home loan, and that percentage is 1.75% of the loan amount then you would have a monthly premium in addition to that, it’s 0.85% and that’s amortized over the life of the loan. 

If you put a higher down payment, there are some chances to get a lower monthly premium in your payment.

Benefits of FHA Loan

- Have lower interest rate than conventional financing

- Have lower interest rates for the people that have mid to lower FICO scores

- Make home loans more affordable

Does Everybody Get The Same Rate When Buying FHA?

-Normally if you have a 620-640 credit score and above, you do get the same interest rate as somebody with a 700 credit score. But here’s the deal, if you are somebody with a high credit score and you’re putting 3% down you can compare that to the conventional alternative but, if you are under 700 credit score the conventional alternative is a lot of the time more expensive.

Can The Lender Shop Around Your Mortgage Insurance? How It Can Give You A Better Number?

-The mortgage broker or lender can shop around the mortgage insurance premium. This is based on your credit score and other factors. They're all very similar but there are some that offer specials or one will have a higher credit hit than the other will. That is the reason why it’s important that they shop around. There are multiple ways of constructing your mortgage insurance premiums on conventional loans so you can buy it upfront specially if you have a higher credit score, oftentimes that will give you a lowest monthly payment .

Ways For You Not To Put 20% and Buy Out Mortgage Insurance

-A lot of people will buy out their mortgage insurance and then they want to refinance and they don’t quite have the equity, you’d have to pay that over again. Make sure to outweigh the choice of paying off the mortgage insurance or using the extra money to make your down payment bigger. 

There is a way to get rid of that mortgage insurance long-term.

-One way is just doing the principal reduction payment, paying the home loan down until you get the 20% equity. At 20% you will have to call most lenders to request that it gets removed, it doesn’t automatically come off at 20% which is a common misunderstanding.