What Is Private Mortgage Insurance And How Can You Avoid It?  

If you think the cost of buying a home is merely paying the agreed-upon price, you’re wrong. In fact, there are numerous additional fees and expenses that you’ll be responsible for, typically on the day of the closing.

But if you’re looking to avoid some of these additional fees, one of the biggest ones is private mortgage insurance (PMI). You’re required to take out insurance on your conventional loan, typically if you’ve made a down payment under 20%, and you’ll need to pay the premium each year. PMI ensures that your lender is protected in the case that you stop paying your home loan.

You won’t have to go out and find a PMI issuer or pay an insurance company directly. Your local California mortgage lender will have options for insurance for you to choose from, and your monthly premium can be added directly onto your mortgage payments. You’ll be given an estimate of the cost of PMI on your Loan Estimate and Closing Disclosure forms.

But what if you’d like to avoid paying for PMI altogether?

One option is to make a down payment of over 20%. If you can save money, find gift money, or have another way of accessing cash, make the larger down payment and avoid the cost of insurance.

Another way to avoid PMI is to get an FHA loan. While these loans offer lower down payment options, you will have to pay for an insurance premium – but this time it goes to the government, the backers of your loan, and is factored into your total loan cost.

It’s also important to keep in mind that you may not have to pay PMI once you accumulate a certain amount of equity in your property. If you’ve been in your California home for decades, you may be off-the-hook for these payments. Make sure you know when and if this is an option according to your lender’s terms.

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