How to Avoid PMI with an FHA Loan
You can avoid having to pay for private mortgage insurance (PMI) by making a down payment of at least 10%. If you have an FHA loan, you can also avoid PMI by making a down payment of at least 5%.
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What is PMI?
PMI is private mortgage insurance, which lenders use when borrowers request a loan but are unable to make a large down payment. pmi protects the lender in case the borrower defaults on the loan. If you are unable to avoid PMI, there are ways to get rid of it early.
How PMI works
Private mortgage insurance (PMI) is insurance that protects the lender in the event that you default on your mortgage payments and owe the lender more than what your home is worth. If your down payment is less than 20 percent of the purchase price of your home, you will be required to pay PMI.
The amount of PMI you pay varies depending on the size of your down payment and the type of loan you have, but it can range from 0.5 percent to 2 percent of the loan amount annually. You will usually have to pay PMI for a period of five years or until you have paid down your loan to 78 percent of its original value, whichever comes first.
Once you have reached that point, you can ask your lender to cancel PMI. If you have a conventional loan, they may do so automatically. With an FHA loan, you will need to refinance into a conventional loan in order to cancel PMI.
How to avoid PMI with an FHA loan
The best way to avoid paying monthly PMI is to make a down payment that is equal to or greater than 20% of the home’s value. If you do this, you won’t have to pay PMI.
If you can’t put down that much money, you can still avoid PMI by taking out a loan that doesn’t require it. The most common way to do this is with a government-backed loan, like an FHA loan.
FHA loans are available to borrowers with credit scores as low as 580, and they only require a 3.5% down payment. You will have to pay monthly mortgage insurance (MIP), but you can cancel it after 11 years if your home value has increased and you have been timely with your payments.
How to get an FHA loan
An FHA loan is a loan that is insured by the Federal Housing Administration. FHA loans are available to first-time homebuyers and to people who may have had difficulty qualifying for a conventional mortgage. FHA loans are especially good for people with less than perfect credit. PMI is Private Mortgage Insurance.
How to qualify for an FHA loan
In order to qualify for an FHA loan, you must have at least a 500 credit score – however, a credit score of 580 is the ideal number to get approved for a 3.5% down payment. If you have a credit score of less than 580 and as low as 500, you may still be eligible for an FHA loan but will be required to put 10% down.
The benefits of an FHA loan
An FHA loan is a mortgage that is insured by the Federal Housing Administration. This type of loan is popular among first-time home buyers because it allows for a low down payment (as little as 3.5%). It also has some other benefits, such as a lower credit score requirement (as low as 580 for qualified borrowers) and relaxed income requirements.
FHA loans are not without their drawbacks, however. One of the biggest is the fact that you will have to pay for private mortgage insurance (PMI) if you put less than 20% down when you purchase your home. This can add hundreds of dollars to your monthly payment, and it can make it harder to qualify for an FHA loan in the first place.
There are ways to avoid paying PMI on an FHA loan, however. One is to make a down payment of at least 10%. This will allow you to get a refund of your PMI premium when you refinance later. Another option is to get what’s called a piggyback loan, where you take out two mortgages at once – one for 80% of the purchase price and one for 10%. You can use the second mortgage to pay off your PMI premium, and then you’ll only have one mortgage payment to make each month.
How to avoid PMI with an FHA loan
If you’re looking to avoid PMI with an FHA loan, there are a few things you can do. You can put down a higher down payment, get a cosigner, or look for a lender that doesn’t require PMI. Let’s take a closer look at each of these options.
Make a down payment of at least 10 percent
You can avoid PMI with an FHA loan by making a down payment of at least 10 percent. With an FHA loan, you pay an upfront mortgage insurance premium (MIP) of 1.75 percent of the loan amount. But you also pay a monthly premium, and that’s currently 0.85 percent of the loan amount for loans with a term of 15 years or less.
Get a homebuyer’s certificate
If you’re Getting a homebuyer’s certificate from a HUD-approved housing counseling agency, you can avoid having to pay for PMI. You’ll have to complete the counseling program before you close on your loan, but it could save you money in the long run.
Get a piggyback loan
A piggyback loan is when you take out a second loan to cover part of the down payment on your first home. This can help you avoid PMI, because the lender will consider the second loan as part of your down payment.
Piggyback loans are available from some lenders, but not all. And there are usually restrictions on how much you can borrow. So it’s important to compare piggyback loans before you decide to go this route.