How Homebuyers are Skipping PMI and Keeping More Cash
No one gets excited about paying for something that doesn’t benefit them directly, and that’s exactly how PMI (private mortgage insurance) feels for many homebuyers. It’s an extra monthly cost designed to protect the lender, not you. But here’s the good news: there are several smart ways to avoid it entirely.
Whether you’re planning your first home purchase or exploring your options, here’s how to keep more money where it belongs: in your wallet.
Save Up That Golden 20% Down Payment
The most straightforward way to sidestep PMI is by putting down 20% of the home’s purchase price. It’s the magic number most lenders look for, and it instantly eliminates the need for PMI. Sure, it may take longer to reach that amount, but doing so sets you up for lower monthly payments, better interest rates, and instant equity in your home. It’s a power move in any market.
Try the 80/10/10 Strategy (AKA Piggyback Loan)
Not quite at 20%? A piggyback loan might be the creative solution you are looking for. Here’s how it works: you take out a primary mortgage for 80% of the home’s value, a secondary loan for 10%, and pay the final 10% as your down payment. This structure helps you avoid PMI, even without hitting that full 20% on your own. Just keep in mind that juggling two loans means a little extra math, but for many buyers, it’s totally worth it.
Let the Lender Pay, But Know the Tradeoff
Some lenders offer to cover the PMI in exchange for a slightly higher interest rate. This setup, called lender-paid mortgage insurance (LPMI), can be a good option if you prefer to keep your monthly payments simple. The catch? You’re locked into that higher rate unless you refinance later. If you plan to stay in your home for a long time, it might make financial sense, but it’s always smart to crunch the numbers first.
Look into Government-Backed Loan Programs
If you qualify for a VA loan through the military service, you’re in luck; no PMI is required, even with no down payment. For others, USDA and FHA loans offer different insurance structures that may reduce your out-of-pocket costs compared to traditional PMI. These options come with their pros and cons, but they’re definitely worth considering if saving a full 20% down isn’t realistic right now.
Refinance When You’ve Built Up Equity
Already own your home and are stuck paying PMI? You’re not stuck forever. Once your loan balance drops below 80% of the home’s value, or if your home’s value has increased due to market trends or renovations, you may be able to refinance into a new mortgage without PMI. Even better, lenders are required to cancel PMI automatically when you hit a 78% loan-to-value ratio. Keep tabs on your numbers and don’t be afraid to reach out to your lender when the time is right.
Choose a Home That Makes the Numbers Work
Sometimes the secret to skipping PMI is all in the price tag. If you’re willing to be flexible with your home’s size or location, it might be easier to hit that 20% mark. A smaller loan means a smaller down payment, which can put you in PMI-free territory sooner. It’s a strategic way to buy smart and save long-term.
Final Thought: Is PMI a Must Or Just a Maybe?
Private mortgage insurance (PMI) might seem like a default part of the homebuying process, but the truth is, it doesn’t have to be. Whether you save aggressively, explore creative financing, or keep an eye on your equity, avoiding PMI is possible, and potentially very profitable. With a little planning and the right strategy, you can keep your monthly costs down and your homeownership goals moving forward.