How To Avoid Mortgage Insurance
Avoiding mortgage insurance—typically Private Mortgage Insurance (PMI) for conventional loans or Mortgage Insurance Premium (MIP) for FHA loans—usually depends on how much down payment you can provide and the type of loan you choose. Here are several strategies to avoid or eliminate mortgage insurance:
1. Put Down at Least 20%
- Conventional loans typically require PMI if you put down less than 20% of the home’s purchase price.
- To avoid PMI entirely, put at least 20% down when purchasing your home.
2. Use a Piggyback Loan (80/10/10)
- Structure your financing with:
- 80% from a primary mortgage
- 10% from a second mortgage or HELOC
- 10% as a down payment
- This helps you avoid PMI while putting down less than 20% upfront.
3. Choose a Lender-Paid Mortgage Insurance (LPMI) Option
- Some lenders offer LPMI, where they cover the cost of PMI in exchange for a slightly higher interest rate.
- Good for short-term stays (e.g., less than 5–7 years), but may cost more over time.
4. Opt for VA Loans (if eligible)
- If you’re a veteran, active-duty service member, or surviving spouse, you may qualify for a VA loan, which does not require mortgage insurance, regardless of down payment size.
- VA loans have a one-time funding fee, but no ongoing MIP or PMI.
5. Get Your Home Reappraised (For Existing Loans)
- If your home value has increased and your loan-to-value (LTV) ratio has dropped below 80%, you can request PMI cancellation.
- Requires appraisal and sometimes a good payment history (usually at least 2 years of on-time payments).
6. Refinance When You Hit 20% Equity
- Once your home equity reaches 20%, you can refinance your loan to eliminate PMI (if you’re on a conventional loan with PMI).
- Be mindful of closing costs and interest rates to ensure refinancing is beneficial.
7. Avoid FHA Loans (Unless Necessary)
- FHA loans have upfront and annual mortgage insurance (MIP), often for the life of the loan if you put less than 10% down.
- If you qualify, a conventional loan may help you avoid long-term mortgage insurance.
Summary Table:
| Strategy | Avoids PMI? | Notes |
|---|---|---|
| 20% Down Payment | ✅ | Best and simplest way |
| Piggyback Loan | ✅ | Requires two loans |
| LPMI | ✅ | Higher rate instead |
| VA Loan | ✅ | Must be eligible |
| Reappraisal | ✅ (for existing loans) | Use if home value rises |
| Refinance | ✅ | Watch fees/rates |
| Avoid FHA Loans | ✅ | If possible, go conventional |