Private Mortgage Insurance, also known as PMI, is a type of insurance that is required by lenders when a borrower puts less than 20% of the home's value as a down payment. This insurance protects the lender in case the borrower defaults on the loan. Many home buyers in Austin are eager to avoid paying PMI due to its additional cost, which can add up to hundreds of dollars a month to their mortgage payment.
The most common and effective way to avoid Private Mortgage Insurance is to make a larger down payment of at least 20%. While it may seem like a significant upfront cost, it can save you a considerable amount of money in the long run. Not only will you avoid the added expense of PMI, but you will also have a lower mortgage payment and possibly lower interest rates.
If you are a current or former member of the military, you may qualify for a VA loan. These loans are backed by the Department of Veterans Affairs and do not require a down payment or Private Mortgage Insurance. In Austin, there are many military bases, such as Fort Hood and Camp Mabry, making this a viable option for many home buyers.
Lender-paid Mortgage Insurance, or LPMI, is an option for borrowers who are unable to put 20% down but want to avoid PMI. With LPMI, the lender pays the insurance premium upfront, and in return, the borrower pays a slightly higher interest rate. This option may be beneficial for those who plan on staying in the home for a prolonged period.
A piggyback mortgage, also known as an 80/10/10 loan, allows borrowers to avoid paying PMI by splitting the mortgage into two loans. The first loan covers 80% of the home's value, and the second loan covers the remaining 10%. The borrower then puts down a 10% down payment, effectively avoiding PMI. However, not all lenders offer piggyback mortgages, so it's essential to do your research and discuss this option with your lender. In conclusion, Private Mortgage Insurance is an additional expense that many home buyers in Austin are eager to avoid. By considering these options, such as making a larger down payment, qualifying for a VA loan, or exploring piggyback mortgages, you can successfully avoid paying PMI and save yourself significant money in the long run. Remember to do your research and discuss these options with your lender to find the best solution for you.
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