When navigating the home-buying process in Nevada, understanding mortgage insurance is vital to avoiding unwanted extra fees. Mortgage insurance is typically required for borrowers who make a down payment of less than 20% of the home’s purchase price. Here are some actionable tips to help you sidestep those extra costs.
1. Aim for a 20% Down Payment
One of the most straightforward methods to avoid mortgage insurance is to save for a down payment of at least 20%. This strategy not only eliminates the mortgage insurance requirement but also reduces your monthly payment significantly. Start budgeting early and consider setting up a separate savings account dedicated to your future home.
2. Explore Lender-Paid Mortgage Insurance (LPMI)
Some lenders offer the option of lender-paid mortgage insurance, which can be a viable alternative. With LPMI, your lender pays the mortgage insurance premium upfront, usually in exchange for a slightly higher interest rate. While your monthly payments may increase, you avoid separate mortgage insurance charges.
3. Consider a Piggyback Loan
A piggyback loan involves taking out a second mortgage to cover part of your down payment. For instance, you could take out a first mortgage for 80% of the home’s value, a second mortgage for 10%, and make a 10% down payment. This approach allows you to stay below the 80% threshold, thus avoiding mortgage insurance altogether.
4. Shop Around for Competitive Rates
Different lenders may have varying policies regarding mortgage insurance. It’s essential to shop around and compare lenders to find the best deal. Some may offer lower rates for mortgage insurance or different structures that can save you money in the long run.
5. Monitor Your Home’s Value
As market conditions change, so too does your home’s value. If your home's value has increased and you now have more than 20% equity, you can request that your lender remove the mortgage insurance. Keep an eye on local real estate trends in Nevada to make this adjustment when the time is right.
6. Maintain a Good Credit Score
Your credit score plays a significant role in determining your mortgage rates and insurance premiums. A higher credit score can lead to lower fees and better terms. Pay bills on time, reduce debt, and avoid applying for new credit before buying a home to improve your credit score.
7. Understand the Terms of Your Mortgage Insurance
Taking the time to read the fine print on your mortgage insurance can reveal options that allow for cancellation or reduction of fees. Some policies may allow discharging mortgage insurance payments after reaching a specific equity threshold. Always clarify these terms with your lender before signing any agreements.
8. Consider Government Programs
Nevada offers several programs designed to help first-time homebuyers, including options that might help reduce or eliminate mortgage insurance costs. Investigate programs by the Nevada Housing Division or local assistance programs that can provide financial relief.
By employing these strategies, you can avoid extra fees associated with mortgage insurance and make your home-buying experience in Nevada far more cost-effective. Always consult with a financial advisor or mortgage professional to ensure that you’re making informed choices tailored to your unique financial situation.
