How To Avoid PMI On Conventional Mortgages

Home buyers in Flower Mound inquire quite often about the various ways in which they can use conventional lending and avoid  PMI (Private Mortgage Insurance).  In this post, I am going to talk about the basic facts of Private Mortgage Insurance when using the Conventional Mortgage.  Just FYI, there is a difference between FHA MIP and Conventional PMI.

PMI (Private Mortgage Insurance)

If you do not put down 20% or you do not get a 2nd lien so that your first large loan is not at least 80% of the purchase price of the home, then you have to get PMI.  On refinances, it’s 80% of the appraised value.  The only other way to avoid paying PMI in this case is if you structure the loan with Lender Paid PMI.  This is why 20% down payment is the best option when possible.

Avoiding PMI by Using 2ndary Financing

If you only want to put down 5%, 10%, or 15% toward you purchase, you can avoid paying Mortgage Insurance by securing a 2nd lien on the property.  For example, if you wanted to put down only 10%, you could look at getting 1st lien that is 80% of the purchase price of your house, and then a 2nd lien that is 10% of the purchase of the house.  This is a combo loan that is often called an 80/10/10 (80% 1st lien, 10% 2nd lien, and 10% down payment).  The only other way to avoid paying a monthly PMI is to choose the lender paid option.  In the lender paid PMI option, the interest rate is just slightly higher (usually by only .25%-.375%), but for those folks with the primary goal being the lowest monthly payment possible, the increase in rate delivers a monthly payment that is lower than the option where the rate is lower but you also have to pay the monthly PMI.