What is PMI?
If you’re on the path to becoming a first-time homeowner in Virginia Beach, Norfolk Chesapeake one thing you’ll want to figure out is how to avoid private mortgage insurance (PMI). If you’re not familiar with PMI, it’s essentially an insurance policy your lender will require you to purchase if you’re planning on putting less than 20% down on your home; this insurance helps to mitigate the risk your lender takes by letting you borrow from them.
Unfortunately, PMI can easily add hundreds of dollars per month to your mortgage payment–easily totaling thousands per year. The good news, however, is that there are several potential ways to go about avoiding PMI altogether.
Put Down 20% on Your New Home
The first and perhaps most obvious way to go about avoiding PMI is to simply put at least 20% down on your new home. When you put that amount down on your new home, your lender is taking 80% or less of the risk associated with your mortgage, as opposed to 95% or more of the risk. As a result, you won’t be required to purchase the policy.
Of course, putting 20% down on a home can be easier said than done. After all, on a $200,000 home, that’d equate to a $40,000 down payment. Fortunately, if that’s not something you can afford, there are other options.
Explore Credit Union Mortgage Options
Because credit unions are non-profit financial institutions, they tend to offer more lucrative loan options to their members. If you’re already part of a credit union, consider inquiring with them to see if they offer any mortgage options that allow you to forego PMI, even with a lower down payment. Many credit unions offer these types of loans for those who have great credit.
If you aren’t a credit union member, now’s the time to look into joining one. Click here to locate your local credit unions.
Opt for a Higher Interest Rate
Even if you can’t qualify for a credit union mortgage without a PMI due to your credit or any other circumstances, there are still options for avoiding PMI altogether. Consider asking your preferred mortgage lender about the possibility of choosing a slightly higher interest rate in exchange for being able to avoid buying PMI. Typically, in exchange for about a half percent higher interest rate, you can take out a home loan without PMI and without having to put 20% down.
Yes, this means you’ll be paying a little more over the life of the loan, but you’ll still be saving money by not having to pay hundreds per month in PMI. Plus, you can always refinance at a lower interest rate once you have 20% equity in the home.
Research Community Mortgage Options
Last but not least, there are “community” mortgage options available by many lenders; these mortgages are generally reserved for those with excellent credit scores. However, if you have excellent credit, a community mortgage may be applicable to certain neighborhoods. Of course, this does limit you a little bit in terms of where you can house-hunt, but if you’re serious about avoiding PMI and still being able to use a relatively low down payment, this is definitely worth looking into.
To find out about community mortgage options, you’ll want to speak to several lenders and find out about the options (if any) they have available. From there, shop around to find the loan with the most lucrative terms to suit your needs. If you live in Virginia and want to get started, check out Community Mortgage Network.
How to avoid private mortgage insurance should be a priority for any first-time home buyer, as doing so can save you thousands of dollars in the long-term. For more information and assistance with buying or selling a home fast for cash in Virginia Beach, Norfolk or Chesapeake, be sure to contact us to speak with a friendly professional!