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How to get a no PMI Mortgage

 

 

“If you’re new to real estate investment or you’re a first “If you’re new to real estate investment or you’re a first time home buyer, you may be a little mystified by all the little fees and terms that nobody told you about. One of those fees is Private Mortgage Insurance, frequently referred to as PMI. Most loans require PMI and in all likelihood it will have to be part of your monthly payment, but there are a few rare opportunities to avoid paying it. It will have to be part of your monthly payment, but there are a few rare opportunities to avoid paying it.

One Big Down Payment

The first way to avoid private mortgage insurance is a way you are not going to like: make a very
large down payment. This requires you have plenty in savings and few people can make a large enough
down payment to avoid PMI these days. Why? Because to score a no PMI mortgage you need your down
payment to be at least 20 percent of the value of the home you are buying. On a $200,000 dollar
home, that is $40,000.

80-10-10 Loans

Thankfully that first way is not the only way to obtain a no PMI mortgage. The most common way to
avoid PMI these days is to take what is called an 80-10-10 loan. An 80-10-10 loan still requires a
substantial down payment on your part, but you only need to pay 10 percent down instead of the full
20 percent. The remaining 10 percent is covered by a second mortgage.

So basically the 80-10-10 represents the percentage of the house paid by the source. In this case 80
percent is paid by your primary mortgage, 10 percent is paid by your down payment and 10 percent is
paid with a second mortgage. This second mortgage is sometimes called a piggyback loan.

80-20 Loans

The third way to get a no PMI mortgage is to get an 80-20 loan. This is similar to the second method
I described, but instead of making any kind of down payment, the second mortgage pays the entire 20
percent necessary to avoid private mortgage insurance. This is one of the many versions of 0 down
home loans.

But before you get too excited by the prospect of obtaining a loan without having to pay PMI and
without having to make a down payment, you should know that these loans are extremely hard to get
since the housing crash and sub prime lender crisis. And even if you do manage to get an 80-20 of
this nature, you will still have some significant closing costs, so it in not’t really like paying no
money down at all. And after all that, your mortgage will also carry an interest rate far above the
market average.

So that is how you might be able to get a no PMI mortgage. It is not easy or common in the current
economic climate, so I still suggest responsible saving and debt management over any kind of clever
loan.