How to Avoid Mortgage Insurance

Mortgage insurance is typically required by lenders when a borrower puts down less than 20% of the home's purchase price as a down payment. Mortgage insurance can add significant cost to your monthly mortgage payments, so if you want to avoid it, here are some tips:

1. Save for a larger down payment: If you can save up to 20% of the purchase price for a down payment, you can avoid the need for mortgage insurance altogether.

2. Consider a piggyback mortgage: With a piggyback mortgage, you take out two loans – one for 80% of the purchase price and another for 10% to 15%. The second loan covers your down payment, allowing you to avoid mortgage insurance. However, piggyback mortgages often have higher interest rates, so be sure to weigh the pros and cons.

3. Look for lender-paid mortgage insurance: Some lenders offer lender-paid mortgage insurance (LPMI), where they pay for the mortgage insurance in exchange for a slightly higher interest rate on the loan. This can be a good option if you have a good credit score and plan to stay in the home for a long time.

4. Choose a government-backed loan: FHA loans and VA loans both require mortgage insurance, but the costs and requirements can be more favorable than those of private mortgage insurance (PMI).

5. Shop around for the best rates: Different lenders offer different rates and terms, so it's important to shop around to find the best deal. Make sure to compare the costs of mortgage insurance as well as the interest rates and fees associated with the loan.

Remember, mortgage insurance can add significantly to your monthly mortgage payment, so it's important to consider all of your options and choose the one that works best for your financial situation.