Here’s How You Can Avoid Paying Private Mortgage Insurance in Provo, Utah
Living in Provo, Utah, has its perks. You’ve got a low crime rate, and people here live a clean and healthy lifestyle. You can hike, fish, and whitewater raft all you want while enjoying spectacular views of Utah Lake and the Wasatch Front mountain peaks.
If you are looking for your new Provo home and are looking for ways to avoid paying private mortgage insurance, you’ve come to the right place. Boom Mortage is the most trusted mortgage broker in Provo, Utah, and we look forward to helping you find a mortgage program that fits your needs.
We understand that no one wants to pay for PMI. It’s an added expense, and it isn’t cheap. While PMI allows you to buy a home with less than a 20% downpayment, wouldn’t it be great to find a way to avoid it and still get the benefit of paying less than 20% down?
We’ll share ways to outsmart paying for PMI while putting down less than a 20% downpayment.
Why do we pay for Private Mortgage Insurance?
PMI or private mortgage insurance is paid if your down payment on a home is less than 20%. The PMI protects your lender if you default on your payments. You can ask your lender to remove it once you’ve gained equity in your home, usually when you reach 20%.
Lenders take on a higher risk when borrowers put down less than 20%, which is why PMI is required.
How much do you pay for PMI?
PMI costs are usually between 0.30% to 1.15% of your loan balance yearly. This amount will be divided into 12 installments and paid along with your monthly mortgage payments.
PMI costs will go down annually based on your loan amount. As you pay off your loan balance, your loan amount also decreases.
Ways to avoid paying for PMI
One of the easiest ways to avoid paying for PMI when you take out a conventional loan is to pay 20% or more upfront. This means paying $50,000 if you buy a home worth $250,000.
If you can’t afford to pay for PMI and want to pay less than 20%, you can apply the strategies below.
1. Get a Piggyback loan
A piggyback loan arrangement is a good option for avoiding PMI. The most common scenario is the “80/10/10.”
With this strategy, you’ll get 2 mortgages, one for 80% of the home’s value and one for the 10%. You’ll pay the last 10% down from your savings while using the smaller of the two loans to complete the 20% downpayment.
Since you’ve put down 20%, you are not required to pay for PMI. Remember that two loans mean making two monthly payments until you’re fully paid.
For condo buyers, a 75/15/10 piggyback loan is usually required since rates are higher for condos with less than 25% down.
You can get the 2nd mortgage from your lender or look elsewhere if they don’t offer them.
2. Look for loans that don’t require PMI
Some loans offer no PMI, like the ones offered for first-time home buyers or first responders.
The catch is that no PMI mortgages usually have higher interest rates and require higher credit scores to qualify.
3. Get your lender to pay for PMI
Have you heard about LPMI or Lender Paid Mortgage Insurance? This strategy is another way you can avoid paying for PMI if your lender offers it.
The downside, however, is you’ll pay higher interest in return.
You can get an LPMI loan with as low as a 3% down payment but with higher rates, especially if you have low credit scores.
4. Get a jumbo loan
Jumbo loans exceed the loan limits set by Fannie Mae and Freddie Mac which means you can get more leeway. Since they don’t conform to national guidelines, PMI may not be required.
Just prepare a 20% or higher downpayment to get a higher chance of loan approval.
Are you ready to buy your new Provo home?
If PMI payments are getting in the way of buying your new Provo home, you can apply the strategies we shared to avoid paying for PMI.
Work with Boom Mortgage and discover creative ways to outsmart PMI payments.
Ask our loan officers about the best loan products available for your new Utah home.
Call or message us for a free consultation today. Our loan officers would be glad to assist you.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.