How to Avoid PMI When Buying a Home - NerdWallet (2024)

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How to Avoid PMI When Buying a Home - NerdWallet? ›

Get an 80-10-10 loan

You can typically remove PMI if market conditions lead to a significant increase in your home's value. You have to make a request with your lender and order a new appraisal. The appraisal confirms your property value rose enough to where you own the required amount of equity.

When it comes to PMI, if you have less than 20% of the sales price or value of a home to use as a down payment, you have two basic options: Use a stand-alone first mortgage and pay PMI until the LTV of the mortgage reaches 78%, at which point the PMI can be eliminated. 2. Use a second mortgage.

Refinance into a piggyback loan to get rid of PMI.

If you don't yet have at least 20% in home equity, you can split your refinance into a first and second mortgage to get rid of PMI. Lenders call this a “piggyback refinance loan,” and it works like this: 1. You take out a first mortgage to 80% of your home's value 2.

Private Mortgage Insurance Example

If you buy a $300,000 home, you could be paying somewhere between $600 – $6,000 per year in mortgage insurance. This cost is broken into monthly installments to make it more affordable. In this example, you're likely looking at paying $50 – $500 per month.

If you've owned the home for at least five years, and your loan balance is no more than 80 percent of the new valuation, you can ask for PMI cancellation. If you've owned the home for at least two years, your remaining mortgage balance must be no greater than 75 percent.

You can remove PMI, or private mortgage insurance, from your mortgage after you have established enough equity in your home. You will need at least 20% in equity. At that point, you can request to have it removed or wait for it to automatically drop off when you have 22% in equity.

Fixed premiums: You may be able to negotiate PMI with your lender. However, the FHA sets the UFMIP and annual MIP rates, and you can't negotiate them.

The larger your loan, the more PMI you will end up paying. The cost of PMI is also influenced by your loan-to-value ratio (LTV). This represents how much you're borrowing in comparison to the total value of the property. The more you put down, the less you need to borrow, which gives you a higher LTV.

Combined with paying down your loan, you could potentially have the 20% equity you need to refinance your loan without the need for PMI. This could save you hundreds of dollars a month that could be used to pay down more of your home loan principle each month or used for other things.

Why is it so hard to get PMI removed? ›

Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.

To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).

The letter should include the homeowner's name, address, and loan number, as well as their request to cancel PMI payments. It should also include any relevant documents or information that the lender may need to process the request.

Legislation making PMI tax deductible was passed in 2006. It applied the deduction to policies issued in the 2007 tax year going forward. The measure has been periodically renewed, but expired after the 2021 tax year. Currently, PMI is not deductible for the 2022 or later tax years.

What Does a High PMI Reading Indicate? The Purchasing Managers' Index reading can range between 0 and 100. If the index reading is higher than 50, then it indicates an economic expansion. This means that the closer the reading is to 100, the higher the degree of positive economic growth.

Like principal and interest, private mortgage insurance premiums generally don't change after your loan closes. So you can eliminate that as well. That leaves home insurance premiums. Providers do increase them from time to time, however there are steps you can take to reduce this cost.

You re-appraise your home after it gains value. Generally, you can request to cancel PMI when you reach at least 20% equity in your home. You might reach the 20% equity threshold by making your payments on time per your amortization schedule for loan repayment.

It applied the deduction to policies issued in the 2007 tax year going forward. The measure has been periodically renewed, but expired after the 2021 tax year. Currently, PMI is not deductible for the 2022 or later tax years.