PMI

Unlocking the Mystery of PMI: How to Save on Your Mortgage

Discover what PMI is and learn practical tips to avoid it in your mortgage journey.

Rachel Weisz

Rachel Weisz

— 2 min read
A family discussing mortgage options in a living room setting with financial papers on the desk.
A family discussing mortgage options in a living room setting with financial papers on the desk.

Have you ever wondered what PMI is and how it sneaks its way into your mortgage? It’s a small acronym with a big impact on homeownership. The good news is, with a little knowledge, you can potentially side-step this expense.

What is PMI?

PMI stands for Private Mortgage Insurance, and it’s a fee that lenders often require when buyers purchase a home with less than a 20% down payment. Essentially, it’s a safety net for them in case you default on your loan, which can add a few hundred dollars to your monthly payment.

Why Lenders Love It

  • Risk Reduction: Lenders view PMI as a way to protect themselves from risk in less-than-ideal market conditions.
  • Expanding Buyer Options: With PMI, more people can qualify for loans, which means more business for lenders.
  • Higher Loan Amounts: PMI allows buyers to enter the real estate market sooner, sometimes with larger loan amounts than they might otherwise be approved for.
A cartoon image of a puzzle solving session with a house at the center, representing understanding PMI.

How to Avoid PMI

A friend of mine, Sarah, recently bought her first home. She was over the moon, but a little frustrated by the looming presence of PMI in her monthly statements. Determined, she explored a few strategies and this is what she learned:

1. Save for a Larger Down Payment

This might seem obvious but investing time in budgeting and growing that down payment can relieve you of PMI. Sarah spent an extra year saving, and it really paid off!

A financial advisor explaining to a couple how to budget for a home without PMI on a desk full of charts.

2. Piggyback Loans

Consider an 80-10-10 loan, where you get a primary mortgage for 80%, a secondary loan for 10%, and put down 10% in cash. This can effectively avoid PMI.

3. Shop Around

Some lenders offer loans without PMI with certain conditions. A bit of comparison shopping can go a long way in finding such gems.

The Path Forward

Understanding and navigating PMI doesn’t have to be overwhelming. Empowered with the right strategies, you too can make informed decisions on your path to homeownership.

Two friends celebrating in front of their new home, feeling proud after learning about mortgage strategies.

Have you encountered PMI in your home purchasing journey? What steps did you take to manage or avoid it? Let’s share stories and strategies in the comments!

Read more