PMI to pay underwater borrowers to stay put

If you borrow more than 80% on a conventional loan, you will pay PMI. It could cost you hundreds of dollars every month. You pay it until you owe less than 80% of the value of your home. That could be a long time if you borrow 95% of the home’s value. Even with home appreciation, it could still cost you thousands of dollars in total.

 · In this post, I’ll address what PMI is, how to avoid it from the start, and how to get rid of it at a later point in time. What is Private Mortgage Insurance (PMI)? Private mortgage insurance, or PMI, is an insurance policy that compensates lenders (i.e. banks) in the even of a default on a mortgage.

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No private mortgage insurance. Michael Shea , a certified financial planner with Applied Capital in Nashville, Tenn., says he always encourages people to do their best to put 20 percent down on their home purchase in order to avoid paying PMI. Yes, the FHA requires borrowers to pay a mortgage insurance premium (two of them.

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In addition, a refinance may not make sense financially, particularly for borrowers. without paying private mortgage insurance (pmi). adding that to the cost of a new loan could negate the benefit.

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This is why a lot of people choose to put at least 20% when buying a house (those who can afford it, anyway). It’s a way to avoid the added cost of insurance. Read: Relationship between PMI and down payment. FHA Mortgage Insurance Covers the Lender. But getting back to the question at hand: Who does FHA mortgage insurance cover?

PMI payments are heavily based on credit score. For instance, a buyer with a 640 score will pay more than $300 per month with a 5% down loan at an average home price. The same borrower with a 740 score would pay just over $100 per month. Home buyers with lower credit scores should consider an FHA loan.

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But if that’s not an option for you, as it isn’t for most, it’s still possible to avoid paying private mortgage insurance altogether while putting no money down thanks to a combo loan. Here’s how it works. If you keep your first mortgage at 80% LTV, and add a second mortgage of 20%, you can still obtain 100% financing without paying PMI.