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When you buy a home, a typical down payment is 20%. If you cannot afford to put 20% down, you still can get a mortgage, however you will have to pay PMI or private mortgage insurance. This unique mortgage default insurance is paid by you to protect the lender in case of default. There are ways to avoid mortgage insurance, but if you find yourself in a situation where you are required to purchase it, down the line you will find yourself with the means for mortgage insurance cancellation. Here is some mortgage insurance information.

As stated before, if you can't put 20% of your loans value down, you will most likely be required to pay private mortgage insurance. The cost of this insurance is typically between 1/2 to 1% of the loan amount. So for example for a $200,000 loan with a $10,000 down payment you may expect to pay about $85 a month (on top of your mortgage payment).

How To Avoid Mortgage Insurance

Naturally this is something you want to avoid, and there are ways to do that. The most obvious is to pay at least 20% down, either by borrowing from friends or relatives to make up the difference between what you can afford and what is required. Another way is to "piggyback" or take out a second mortgage to put as a down payment thus avoiding the PMI. Unfortunately, the higher interest rates on second mortgages may make payments higher than the PMI, but at least you may be able to write them off on your taxes. you cannot write PMI off.

Once you pay the principle down to a point where you are below a loan to value ratio below 80%, you can cancel the insurance. Another way is to get your home reappraised after it has risen in value, you present the appraisal to your lender to get the go ahead to cancel.

Remodeling your home is another way to raise its value, thereby allowing you to cancel PMI. Just make sure whatever remodeling you plan will raise your homes value enough to make the difference needed to be able to cancel.

Although PMI may seem like a less than desirable thing, keep in mind that a lot of families that otherwise could not get a mortgage are now able to. With careful planning, remodeling, reappraising, or paying down your mortgage, you may not have to keep PMI as long as you think.

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