Private Mortgage Insurance (PMI) can add significantly to your monthly mortgage payment. In Nevada, as in many other states, avoiding PMI can result in substantial savings over time. Here are several strategies to help you sidestep this additional cost.
1. Make a Larger Down Payment
One of the most straightforward ways to avoid PMI is to make a down payment of at least 20% of the home's purchase price. By doing so, lenders see you as a lower-risk borrower, and PMI is typically not required. For example, if you are purchasing a home for $300,000, a down payment of $60,000 will keep you clear of PMI.
2. Consider a Piggyback Loan
A piggyback loan allows you to take out two mortgages simultaneously. The first mortgage covers 80% of the home's value, the second covers 10%, and you make a 10% down payment. This structure prevents the need for PMI by keeping the first mortgage below the 80% loan-to-value ratio threshold.
3. Look for Lender-Paid Mortgage Insurance (LPMI)
Some lenders offer a product called lender-paid mortgage insurance (LPMI). In this scenario, the lender covers the cost of PMI in exchange for a slightly higher interest rate on the loan. While this may increase your monthly payment, it might be worth it to avoid separate PMI costs.
4. Explore Special Loan Programs
Various loan programs, such as FHA loans or VA loans, may have different PMI requirements. For instance, VA loans do not require PMI, making them an appealing option for eligible veterans and active-duty service members. Additionally, some state and local programs in Nevada may provide assistance to homebuyers, potentially allowing you to bypass PMI.
5. Refinance When Appropriate
If you initially had to pay PMI due to a lower down payment, consider refinancing your mortgage once your home appreciates enough to give you a 20% equity stake. This can eliminate PMI entirely, reducing your monthly mortgage payment.
6. Build Equity Faster
Another effective method to avoid PMI is to actively build equity in your home. Making extra payments towards your principal can help you reach the 20% equity mark faster. Additionally, improvements that increase your home's value may also help you reach this threshold sooner.
Conclusion
In Nevada, avoiding PMI is achievable through several strategies, including making a larger down payment, considering piggyback loans, and even refinancing in the future. By understanding these options, you can save yourself from added expenses and enjoy your new home more financially comfortably.
